Educational information, not individual financial advice.
Key Takeaways
Disability insurance replaces a portion of your income if you become unable to work. It's the most under-purchased insurance in the U.S. — more likely to be needed than life insurance during working years, but far less commonly held.
By age 65, about 1 in 4 Americans will experience a long-term disability (60 days or more) during their working years, according to Social Security Administration data. That's dramatically higher than the 1-in-7 or 1-in-8 chance of dying before retirement for someone in their 30s.
Most disabilities are not accidents. The leading causes are:
Many of these strike people in the prime of their working years. If your only asset is your ability to earn income and that ability is impaired, you have a serious financial problem.
Short-term disability (STD): covers typically 1 week to 6 months. Covers illnesses, pregnancy (in many plans), minor injuries. Replacement ratios 60–100% of salary.
Long-term disability (LTD): covers from after STD ends (or shorter elimination period) through retirement age. Replacement ratios typically 60–70% of base salary. This is the coverage that matters for financial planning.
Most employers offer STD and LTD as benefits, sometimes employer-paid, sometimes employee-paid, sometimes both.
Key policy terms:
Benefit period. How long benefits continue — often "to age 65" or "to age 67." Some policies cap at 5 years.
Elimination period. How long you must be disabled before benefits start. Common: 90 or 180 days. Longer elimination = lower premium.
Definition of disability. Critical:
Own-occupation coverage is vastly preferable, especially for specialized professionals (doctors, lawyers, engineers). Any-occ is the default in most employer group policies.
Benefit amount. Usually 60–70% of base salary. Some policies include bonuses; many don't. The replacement ratio is less than 100% to preserve incentive to return to work.
Taxation. If premiums are paid with pre-tax dollars (typical for employer-paid coverage), benefits are taxable. If paid with after-tax dollars (personal policies, or employee-paid via after-tax payroll), benefits are tax-free.
For a 70% replacement ratio that's taxable, after-tax income is maybe 50% of pre-disability income. That's a significant lifestyle cut. For after-tax-premium policies, 70% is 70% — much better.
Employer LTD:
Individual LTD:
The stacking strategy. High earners often have employer LTD (with group-policy caps) plus a supplemental individual policy to cover income above the cap and upgrade the definition to own-occ.
The federal SSDI program provides some coverage:
For most earners, SSDI provides a small backup. A typical approved SSDI benefit replaces maybe 20–30% of pre-disability income for middle-income workers — not enough to maintain lifestyle.
Self-employed. You typically have no employer coverage. An individual policy is essential. Business overhead expense (BOE) insurance can separately cover practice expenses during disability.
Physicians, dentists, lawyers. High-income professionals are often under-insured because employer caps don't cover their full income. Specialty companies (Guardian, Principal, MassMutual, Ameritas) offer large individual policies specifically for professionals.
Dual-income couples. If both earn substantial income, both typically need coverage. Disability of either significantly impacts family finances.
Sooner is better, for the same reasons as life insurance. Disability insurance is cheaper and easier to qualify for when you're young and healthy. Certain professions (with higher disability rates) or pre-existing conditions make later purchase much more expensive or impossible.
If you're starting your career, get individual coverage before relying solely on employer LTD. You may change jobs; you want coverage that moves with you.
Individual LTD for a healthy 35-year-old professional runs roughly 1–3% of gross income for a policy with:
Riders (cost-of-living adjustment, future increase option, partial/residual benefit) add to cost. Own-occupation specifically is more expensive than any-occupation.
For a $150,000 earner, expect $1,500–$4,500 per year for quality individual LTD.
Horizons lets you model disability as a scenario — reduced income starting at a specified month, partially offset by disability insurance benefits. The engine shows the impact on your long-run plan and whether your current coverage is sufficient to protect essential expenses.
During your working years, how does the risk of a long-term disability compare to premature death?
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