The Risk Nobody Thinks About
One in four 20-year-olds will become disabled before reaching 65. The average long-term disability lasts 34.6 months. If you could not work for nearly 3 years, would your family survive financially? Most people insure their car and home but not their most valuable asset — their ability to earn income.
Types of Disability Insurance
- Short-term disability (STD) — Covers 3-6 months after you are unable to work. Typically replaces 60-70% of income. Often provided by employers at no cost. Check your employee benefits
- Long-term disability (LTD) — Kicks in after short-term ends. Covers months to years (some policies to age 65). Replaces 50-70% of income. This is the critical one. Employer-provided LTD is common but often insufficient
- Individual disability policy — You buy privately. Benefits are tax-free (since you pay premiums with after-tax dollars). More portable than employer coverage — stays with you if you change jobs
Key Features to Look For
- Own-occupation definition — Pays if you cannot perform YOUR specific job, even if you could work in another role. A surgeon who injures their hand cannot operate but could teach — own-occupation still pays. This is the gold standard
- Benefit period — How long benefits last. Choose "to age 65" over "5-year" policies if possible
- Elimination period — Waiting period before benefits start (30, 60, 90, or 180 days). Longer period = lower premium. Choose 90 days if you have 3 months of emergency fund
- Cost — Typically 1-3% of annual income. A $100,000 earner pays $1,000-$3,000/year. Worth every penny for a benefit that could pay $700,000+ over a claim period