Disability Insurance

Disability insurance is a policy that pays you a monthly benefit to replace part of your income if a covered illness or injury prevents you from working. Benefits typically begin after an elimination period and continue for a defined benefit period, such as two years, five years, or to age 65 or 67, depending on the contract.

Often yes. Employer group long-term disability is a good starting point, but it typically replaces only 50 to 60 percent of base salary, caps at a monthly maximum, often excludes bonus and commission income, and ends if you change jobs. An individual policy is owned by you, portable, and can fill those gaps.

Own-occupation coverage generally pays benefits if you can't perform the material duties of your own occupation, even if you're capable of other work. Any-occupation coverage generally pays only if you can't work in any occupation for which you're reasonably suited by education, training, and experience. Own-occupation is typically broader and more expensive; the exact definition varies by contract.

Carriers generally limit total disability coverage so that combined benefits replace a portion of your pre-disability income, often up to roughly 60 to 70 percent, with lower percentages at higher income levels. The cap exists so you have a financial incentive to return to work. Exact issue and participation limits depend on the carrier, your occupation class, and any existing coverage.

The elimination period is the waiting time between when you become disabled and when benefits begin, similar to a deductible measured in days. Common elimination periods are 60, 90, or 180 days. Longer elimination periods generally lower the premium but require you to cover more of the income gap from savings or other sources.

It depends on who paid the premiums and with what money. Under current federal tax law, benefits from an individual policy you paid for with after-tax dollars are generally received income-tax-free, while benefits from employer-paid coverage are generally taxable. Rules can change and depend on specific facts, so confirm your situation with a tax advisor.

Some policies cover mental, nervous, and musculoskeletal conditions fully, while others limit benefits for these conditions to a maximum of 24 months over the life of the claim. Read the specific policy language carefully, because these limitations materially affect how the contract performs for common real-world claims.

Premiums typically range from roughly 1 to 3 percent of the income being insured, and vary widely based on age, gender, occupation class, health, benefit amount, elimination period, benefit period, and optional riders. A 35-year-old professional will generally pay less than a 55-year-old in a physically demanding role for the same benefit. Coverage and rates are subject to underwriting.