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How does disability insurance work?

Multiracial family with two daughters at home. Father playing and laughing with elder daughter
Drazen_/Getty Images

Achieving your financial goals and maintaining your lifestyle requires a consistent income. But what happens if that income is no longer there? While planning for a sudden injury or illness is uncomfortable, preparation can be the difference between a minor setback and filing for bankruptcy. Including individual disability insurance in your financial strategy can give you reassurance in even the worst-case scenarios.

With some basic knowledge around how disability insurance works, you can customize your coverage and develop a plan that can protect your family and your future.

How disability insurance works

Disability insurance pays you a portion of your income if you're suddenly unable to work due to an illness or injury. This can help ease the financial and emotional burden on your family by covering extra medical costs and any essential living expenses.

Premiums vary depending on your provider and contract. But generally, disability insurance costs between 1% and 4% of your annual income, broken out over monthly payments. If you experience a qualifying disability while covered by your contract, the insurance company pays out a percentage of your former income that you agreed upon, often between 20% and 80% of your income.

Many workplaces offer employer-sponsored disability coverage, with benefits that often are taxable. However, coverage types can vary, and you're only covered for as long as you work for that employer. Supplemental disability insurance can be a valuable addition to your financial plan in case you change jobs.

Short-term vs. long-term disability insurance

The main difference between short- and long-term disability insurance is the length of the benefit period.

  • Short-term disability contracts typically begin disbursing payments faster but only last up to a year or two.
  • Long-term disability coverage may not kick in immediately, but it can last for years or even until retirement (if the disability is permanent).
Type of disability insurance
How long does it last?
Who offers it?
What does it cover?
How much of your income does it replace?
What is the waiting, or elimination period?
Usually 13-26 weeks.
Typically employers, but can be supplemented or provided through individual policies.
Most illnesses or injuries.
Generally 40-100% of your base income.
Within a couple weeks after disability. 
Plans vary, but often up to retirement age.
Some employers, but mostly private insurance companies in the form of supplemental or individual coverage.
Most illnesses or injuries.
Generally 40-66 2/3% of your base income through group coverage, or up to 80% by adding an individual policy.
Typically 90-180 days after disability.

What is considered a disability?

Disability insurance covers most nonwork-related events that make it impossible for you to perform your job duties. For instance, recovering from childbirth isn't necessarily considered an illness or injury. But if you can't perform your duties at work while you recover, many short-term disability contracts provide a few weeks of coverage. However, disability insurance contracts may not cover certain conditions, so read your contract to get a clear picture of any exclusions.

Breaking down disability insurance coverage terms

Understanding some basic terminology can help you customize your insurance contract to work to your advantage. Knowing your needs as a family can help you streamline certain coverages and bulk up others where you may need a little more protection.


The premium is the monthly payment you owe on your disability insurance contract. If you receive an initial premium quote that seems too high for your needs, you usually can adjust your benefit, the benefit period or the elimination period to reduce the premium and prioritize coverage aspects that matter to you.


The benefit is the amount you receive each month from your insurance provider if you have a qualified disability. This is usually expressed as a percentage of income, often 50% to 60% (but it varies by contract).

Benefit period

The benefit period in disability insurance is the amount of time you can receive benefit payments, provided you're continuously unable to work. Long-term disability contracts typically cover you for benefit periods of two, five or 10 years. Or you can choose one that covers you until a retirement age like 65 or 67.

For short-term disability, your benefit period is typically three months, six months, or potentially up to a year or two.

Elimination period

The elimination period in disability insurance is a bit like a health insurance deductible. But instead of a dollar amount, it refers to how fast your coverage kicks in. For instance, a common elimination period for long-term disability is 90 days. This means that you handle your expenses for the first 90 days after you stop working before you begin receiving benefit payments.

If you have an emergency fund, you can rely on your savings for those first few months, allowing you to lower your monthly premiums by choosing a longer elimination period.

Common disability insurance riders

Contract riders are another way for you to customize your disability insurance contract. These upgrades can help you create a plan that's specific to your family's needs and can give you confidence that you can maintain your lifestyle.

  • Future purchase option benefit (FPO). An FPO allows you to upgrade your coverage without a new medical exam.
  • Cost of living adjustment (COLA). This rider indexes your coverage to the rising cost of living.
  • Residual disability benefit rider. This rider provides a percentage of your coverage while you transition back into work.
  • Social insurance offset benefit. To keep premiums lower, you can use this rider to let your disability insurance wrap around other coverages, like Social Security disability coverage or workers' compensation.
  • Supplemental disability income benefit. This benefit is designed to be your secondary coverage after your employer-sponsored disability insurance.

Customizing your disability insurance

Understanding your individual circumstances and financial priorities is the first step to determining how much disability insurance you need. A Thrivent financial advisor can help you create a comprehensive income protection strategy and customize your disability insurance contract to best fit your needs.

Disability income insurance contracts have exclusions, limitations, reductions of benefits and terms under which the contract may be continued in force or discontinued. For costs and complete details of coverage, contact your licensed insurance agent/producer.

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

Riders are optional and available for an additional cost.

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