Disability income insurance

Disability income insurance can provide a critical safety net if you become unable to work due to illness or injury. Coverage can help you replace part of your income so you can keep up with expenses like your rent or mortgage, groceries, utilities and other bills.

Short-term (STDI) and long-term disability insurance (LTDI) ultimately offer similar flexibility and income replacement, but different benefit period lengths. While most STDI contracts cover you for 13–26 weeks, some LTDI plans may pay benefits until you reach retirement age.

Disability income insurance covers loss of income due to illnesses and injuries that inhibit your ability to work. That can include everything from broken bones and chronic pain to cancer, depression and more. Your benefits can be used to pay for expenses as you see fit.

As a general rule of thumb, a disability income insurance policy costs between 1% and 4%* of your annual salary. But a more specific figure will depend on factors like your benefit amount, health status, occupation, age and the length of your waiting period before benefits kick in.

The short answer: No. Unlike other types of health insurance, you cannot write off disability income insurance premiums on your tax return. That’s because they’re paid with after-tax dollars. The upshot is that the benefits you’d receive are tax-free if, or when, you’d need them.

How much disability income insurance you need largely depends on your expenses and the portion of your paycheck you’d need to keep up with them. Could you live on 90% of your income? 80%? Take inventory of your bills and other needs. And consider coverage you may already have—like group disability insurance through your employer or Social Security Disability Insurance, if you qualify. Private disability coverage may help you fill any gaps.

For many people, disability income insurance can be a worthwhile investment. Especially when about 25% of today’s 20-year-olds will experience a disability before age 67—typical retirement age.² Disability insurance replaces a portion of your income if you can’t work due to injury or illness. And a policy may be more affordable than you think.

While you may receive group disability income insurance as an employee benefit through work, your plan likely doesn’t cover your entire salary. Consider whether or not you could live on 50% or 60% of your income. And also note that your employer’s plan only covers a portion of salary, bonus, commissions or incentive compensation. Private disability insurance can help fill those gaps by offering more income replacement and a longer benefit period. Plus, you don’t have to worry about losing that coverage if you lose or change jobs.

While Social Security Disability Insurance (SSDI) can offer essential support to people who can’t work, the program has considerable limitations and can be difficult to qualify for. Based on data from the Social Security Administration and the Bureau of Labor Statistics, researchers also found that SSDI benefits are rarely enough to cover even half of someone’s cost of living.