Disability insurance can provide financial support if an illness or injury prevents you from working for an extended period of time.
Consider how your life would change if you suddenly couldn’t earn an income for weeks, months, or even years. While the answer may seem obvious, your ability to earn money is often one of your most valuable financial assets.
Many people insure their home and car, yet overlook disability insurance—even though it protects the income you rely on to pay your bills and support your household.
What Is Disability Insurance?
Disability insurance replaces a portion of your income if you become unable to work due to a qualifying illness or injury. You purchase coverage while you are healthy and working. If an unexpected event leaves you unable to earn an income, the policy provides benefit payments to help you continue meeting your financial obligations.
Why Is Disability Insurance Important?
If your household depends on your income, disability insurance can play an important role in protecting your financial stability. It helps cover everyday expenses such as housing, utilities, food, and other ongoing bills if you’re unable to work.
While many people assume disability won’t happen to them, the Social Security Administration reports that just over 1 in 4 of today’s 20-year-olds will become disabled before reaching age 67. Having coverage in place can reduce financial stress and provide peace of mind if the unexpected occurs.
An emergency fund can help, but it usually isn’t a substitute for disability insurance unless your savings are substantial. Because disability insurance typically replaces only a portion of your income, combining coverage with savings can help you manage both everyday expenses and additional costs, such as medical bills.
What Types of Disability Insurance Are Available?
There are two main types of disability insurance: short-term disability and long-term disability. While they serve a similar purpose, they differ in coverage length, benefit amounts, and cost.
Short-term disability insurance generally covers disabilities lasting a few months, typically around 3 to 6 months. These policies often replace about 60% to 70% of your income and usually cost roughly 1% to 3% of your salary.
Long-term disability insurance provides coverage for longer periods—often five years or more. Benefits typically replace about 40% to 60% of your income and may cost less than short-term coverage. Because it’s designed for long-lasting disabilities, benefits usually begin after an initial waiting period, often called an elimination period.
Regardless of which type you choose, disability insurance is worth considering if you depend on your income. It can help ease the financial burden of a serious illness or injury by providing ongoing income support when you need it most.
