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Why disability insurance matters & who should get it

June 24, 2024
Last revised: July 11, 2024

Many people think they don't need disability insurance beyond the basic coverage offered by their employer. But it's a safeguard that can protect your family's finances when you need it most.

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Maskot/Getty Images/Maskot

Key takeaways

  1. Your employer may provide group disability insurance coverage, but a disabling event or serious illness where you can't work can create a financial gap.

  2. Disability insurance outside your employer's coverage is customizable in various ways, stays with you beyond your employment and may be more affordable than you'd think.

  3. Disability insurance can support you during a prolonged illness or injury when the alternative may be dipping into your savings and putting off your other goals.

Most people know the value of having insurance for their health, home and car. But not everyone realizes why disability insurance matters. Disability insurance can protect you financially if injury or illness keeps you from bringing home a paycheck.

Disability insurance replaces a portion of your income if you're unable to work. It gives you a sense of security and allows you to take the time you need to recover or make arrangements.

It may be hard to think about being unable to work when you're in good health. But the chances that you'll miss work due to a long-term or permanent illness or injury are greater than you may realize. Just over 1 in 4 of today's 20-year-olds will become disabled during their working years before reaching age 67. It could be anything from a car accident to cancer. It may not even be catastrophic—even injuries from a short fall down the stairs can lead to being unable to work for an extended time.

If you're wondering "Do I need disability insurance," let's review some of the common questions that people ask so you can decide if it's right for you.

Why does disability insurance matter?

Disability insurance matters because having a safeguarded source of income can help you feel less stressed as you focus on recovery and readjustment from injury or illness.

Many people assume that some other benefit or source of funds will help them in the case of an injury or illness. But those sources can come with substantial downsides:

  • Group coverage from a workplace usually covers only a portion of your income, often 60% or less. This can mean your household is scrambling to make do with less than your standard budget.
  • Workers' compensation often only covers specific job-related injuries, and Social Security disability benefits can be hard to qualify for because the requirements are different than disability insurance payouts. Both also can take a long time to receive.
  • Using your general savings without disability insurance to supply part of the income you're used to having can deplete your backup and long-term resources quickly.

The main features disability insurance offers that other financial resources don't are wide coverage, customizable benefits and portability. Unlike workers' compensation, the illnesses and injuries covered by disability insurance aren't necessarily limited to issues tied to work activities.

Disability insurance also often comes with a variety of riders you can add to personalize your coverage to your needs and goals. And when you have coverage that isn't tied to your employer, you can rest assured you'll be able to access consistent disability benefits even if you're in between jobs.

Read more about disability insurance riders available

Who should get disability insurance?

In general, anyone who relies on a steady income to pay for day-to-day living expenses can benefit from disability insurance. For certain workers, disability insurance can be a particularly crucial source of stability. People who tend to benefit from disability insurance the most include:

  • Primary breadwinners and significant contributors to a household's income whose income is necessary for ongoing living expenses.
  • People whose essential living expenses add up to more than 60% of their income.
  • Self-employed workers, who can face challenges in rebuilding gigs and networks after a long time off for illness or injury.
  • Parents and other people with dependents who rely on them to maintain an income.
  • Workers in risky professions, whether it's physically tough or imposes a mental or emotional strain that can lead to burnout.
  • Workers who don't have employer-sponsored policies and need their own disability insurance coverage.

What happens if I don't have disability insurance?

You could be putting your financial stability at risk. Without a paycheck and a backup source of income, you'll have to find ways to cover your financial obligations at a time when you're also managing an illness or injury.

You may have personal savings to draw from, but your emergency fund may not last long if you're unexpectedly tapping it for income replacement for an extended time. Also consider that in addition to your regular expenses like housing payments and credit card bills, you may have additional medical expenses due to the disability. You could go through your savings in a short amount of time. Having disability insurance matters for making life and finances less overwhelming during a season of injury or illness.

The connection between bankruptcy & disability
Having a disability is one of the leading causes of bankruptcy. That's right—in addition to the emotional and physical toll a disability can take, it can also lead to significant financial problems.

Learn more about the bankruptcy risk

Is my employer group disability insurance coverage enough?

It's common for people to think that disability coverage through their employer is enough. But Steve Sperka, vice president of Solutions Design, Implementation and Support at Thrivent, encourages you to think about two things as you review your financial strategy.

"First, how familiar are you really with the amount of coverage you have from your employer? Most employer plans don't cover your entire salary," Sperka says. "They cover a portion, and that portion typically will be taxable because your employer is paying the premium."

A key question to consider: If something were to happen to you, would you be comfortable living on 50% or 60% of your salary?

Second, it's important to recognize that coverage from your employer is only connected to that employer, Sperka says.

"If you decide to change employers, you'll likely lose your coverage," he says. "You'll then have to count on the coverage of the next employer or purchase your own. And you can't guarantee your health or that you'd even be eligible to purchase coverage on your own."

Having individual disability insurance puts you in control, Sperka says.

"You can have it at the level you want for you and your family," he says. "And it's portable—it goes with you to the next job."

Typically, you can purchase individual disability insurance that wraps around your current employer plan, covering up to 80% of your total income. And the money from your personal contract likely wouldn't be taxable, Sperka says.

While group coverage from an employer isn't always enough disability insurance, it's wise to dig deeper and learn how much disability insurance you need.

Most employer plans don’t cover your entire salary. They cover a portion, and that portion typically will be taxable because your employer is paying the premium.
Steve Sperka, vice president of Solutions Design, Implementation and Support at Thrivent

Is disability insurance expensive?

Disability income insurance may be cheaper than you think. Typically, the average annual premium is 1% to 4% of your adjusted gross income.*

Learn more about disability insurance costs

Does Social Security cover disability benefits?

Social Security disability insurance, also known as SSDI, is a program that can provide benefits to people who meet the definition of disability under the Social Security Act. If you qualify for the benefits, they can be paid to you or your dependents. However, many applications for Social Security disability benefits are denied at first, and it can take up to two or three years to complete an appeal.

The average monthly Social Security payment to disabled workers, which is determined by your salary and work history, is modest at about $1,537.

What does disability insurance cover?

Disability insurance covers serious health conditions and long-term illnesses as well as accidental injuries. If something is excluded from coverage, such as preexisting conditions or certain occupations or situations, it will be detailed in your contract.

When you buy a disability insurance policy, you can designate how long you want benefits paid. Common timelines are one, two, five or 10 years or until age 67. You also can determine if you want your contract to pay out a portion of benefits if you're partially disabled.

Learn more about what disability insurance covers, exceptions & alternatives

Will I qualify for disability insurance?

If you're healthy, you'll likely be qualified to purchase disability insurance. However, some preexisting health conditions may impact your ability to get the coverage you want.

While you may be eligible to get disability insurance, several factors can influence what the coverage will cost. You'll still qualify but you may pay more if you're older, have a history of health issues or have a high-risk job.

Get help protecting your income

Disability insurance matters because while few people plan on an illness or injury disrupting their life, they do occur. If you're not prepared with a backup for your income, financial stress can pile on top of health challenges. Most people need disability insurance beyond what an employer offers. Factoring this coverage into your overall financial plan safeguards one of your most valuable assets: your ability to earn an income.

Ready to build your disability insurance coverage to suit your actual needs and goals? Connect with a Thrivent financial advisor to review the protection you have in place and for guidance tailored to your situation.

* Based on Thrivent’s current disability income insurance product at standard rates.

Thrivent financial professionals have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.

Thrivent and its financial professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

Thrivent Disability Income Insurance has exclusions, limitations and terms under which the benefits may be reduced, or the contract may be discontinued. For costs and complete details of coverage, contact your licensed insurance agent/producer.

If requested, a licensed insurance agent/producer may contact you and financial solutions, including insurance may be solicited.

Riders are optional and available for an additional cost.