What disability insurance does – and why you need it

Disability insurance replaces a portion of your income when you’re too sick or injured to perform all of your job duties. That’s why some call it “disability income insurance.” The benefits you get can be used in any way to support and maintain your lifestyle, from groceries to mortgage payments to childcare – and even more enjoyable pursuits like travel.

You need it because disability is more common than you probably think: One person in four becomes disabled during their working years1 – and 13% experience a long-term disability that lasts more than five years2. Some people believe they don’t need disability if they work in an office or professional setting – they think it’s for workers at factories or construction sites where accidents are more likely. But only about 10% of long-term disability claims result from accidents – the other almost 90% are caused by illnesses such as cancer, heart disease, even arthritis, which can strike anyone in any occupation3

Do you need short-term or long-term coverage?

Most disability is temporary, keeping a person out of the workplace for under a year. Short term disability insurance (STD for short) is designed to replace income for these shorter periods of recuperation from accident or illness. STD is often provided through the workplace, either as a mandatory or voluntary benefit.

Unfortunately, other disabilities are more severe, longer lasting, and even permanent. Long-term disability insurance (LTD for short) is for these situations, with a benefit designed to last for many years – through retirement if needed. While most STD is offered through the workplace, LTD is often purchased as an individual policy, especially by higher-income professionals who are concerned about what might happen to their family’s lifestyle if they were no longer able to earn an income.

For that reason, LTD policies typically have a more detailed definition of disability which differentiates between own-occupation disability and any-occupation disability. Own-occupation policies pay a benefit if you lose the ability to perform your profession or specialty. Any-occupation policies only pay a benefit if you can’t perform any work at all – even a simple job completely outside of your profession.

This article focuses on the questions people have about long-term disability insurance purchased individually. These policies tend to be highly personalized and relatively complex, especially compared to employer-provided STD plans.

How to determine how much disability coverage you should get 

The simplest answer to “How much should I get?” might be “Enough to replace all my income.” However when it comes to disability insurance, that answer doesn’t work: you aren’t likely to find such a policy. Almost all policies are designed to replace a portion of your income, ranging from 40% to 80%, depending on a number of factors. Here’s how to decide what you need:

What are your actual current expenses?

If you’re concerned about maintaining your lifestyle as much as possible, you need to start by thinking about all the expenses that go into that. Try this: look at your monthly take home pay, then figure out how much you have left over (if any) at the end of the month. If you take home $5,000 a month, save $800, and give another $200 to charity, then your actual expenses are more like $4,000.

What spending changes will you make if disabled?

A lot of financial professionals believe that 60%-70% is the sweet spot for income replacement because most people simply don’t spend as much when they don’t work. Why?

  • You don’t have commuting costs
  • You don’t spend as much on lunch and coffee breaks
  • You spend less on your wardrobe
  • You will likely pay less taxes

In addition, you may be able to lower your housing costs substantially. Many professionals choose to live in affluent urban areas because that is where their jobs are. When they don’t need to be close to a given workplace, they can choose to move to a less-costly area more suited to their new life.

Can your spouse provide more income?

If you’re at home, you may be able to take care of more of the things that your spouse currently does. That could free up more time for your spouse to work and make up at least some of the income shortfall.

Will the benefit be taxable?

Individual LTD policies are usually bought with post-tax dollars, so the benefit is generally not subject to income taxes. However, if you have employer-paid coverage through work, the premium is being paid with pre-tax dollars – and the benefit will be subject to taxes. In that case, a benefit equal to 50% of your take-home income could end up being 35% or 40% of that amount. That’s why many people with workplace disability benefits get a supplemental disability policy to make up the shortfall.

What other assets, income, or savings can you draw on?

If you’ve been building savings for another purpose (not retirement savings) you could repurpose that money to pay living expenses. Also, your job may not be your only source of income – for example you may own rental property. Similarly, if you have a legal or medical practice and own your offices, you could rent that space out to another practitioner.

How can I figure out how much I need?

So, try to put a number on all of the items discussed above and enter them into this simple formula:

Your total current monthly expenses

less (Reduced spending each month)

less (Monthly income from other sources)

equals Minimum monthly disability benefit

Remember: Long term disability coverage is meant to last a long time, providing a monthly benefit that could last for decades. That kind of coverage comes at a cost. The lower the monthly benefit you can comfortably live with, the easier it will be to pay premiums while you are healthy and working.

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How much you should expect to pay for disability insurance

A good benchmark is that an LTD policy can cost 1% to 3% of your income. That’s a fairly significant range, because a lot of variables go into determining your risk for disability and premium cost, including:

  • Your age
  • The state of your health
  • Your occupation
  • Yearly income
  • Monthly benefit amount
  • Waiting period (how long until you can qualify for monthly benefits)
  • Benefit period (as little as 2 years, or through retirement age)

The type of coverage – own-occupation or any-occupation – will have an impact your premiums. With an any-occupation policy, you only qualify for benefits if you have a severe disability and can’t perform the bulk of your work responsibilities. But relative common conditions like arthritis keep many professionals from practicing their specialty – even if they can work at another job that doesn’t require manual dexterity. An own-occupation policy costs more, because there’s a greater likelihood the insurer will have to pay benefits. To illustrate, here is how true own-occupation coverage works in Guardian LTD policies:

True Own-Occupation Disability Insurance

Guardian True Own-Occupation Definition of Total Disability provides you the ability to receive your full disability benefits, even if you’re gainfully employed in another occupation or capacity — with no reduction in benefits. So, if you have the energy, interest and motivation to pursue another occupation while totally disabled in your occupation, our True Own-Occupation definition does not prevent you from doing so.

Riders also affect the cost of your policy. These are optional provisions that enhance your coverage or benefits. A top-tier provider will offer disability coverage with riders, allowing you to tailor a policy to your specific needs. Some of the most popular choices offered by companies such as Guardian include:

  • Cost of living adjustment (COLA) rider: This helps your benefits keep pace with inflation by adjust the benefit amount each year you are disabled and eligible for benefits.*
  • Basic or enhanced partial disability benefit rider: These options protect you by paying a partial benefit if you suffer an injury or illness that limits your ability to work but doesn’t cause total disability.
  • Student loan protection rider: This optional benefit provides extra money to help make student loan payments during the benefit period. It is particularly useful for early-career professionals such as doctors and lawyers who have invested heavily in their education.**
  • Future purchase option: This lets you increase coverage in the future as your income rises, without having to undergo a medical exam or provide proof of insurability.***

How disability coverage can work in real life

An individual LTD policy is a highly specialized financial protection tool, personalized to each policyholder’s specific needs. The scenario below illustrates how a (fictionalized) IT professional tailored a Guardian Provider Choice plan to meet her budget – and how that coverage worked to meet her needs when she was disabled.

Sarah’s scenario

  • 36 years old
  • Married with one child
  • Not eligible for Group Long Term Disability coverage through work
  • Feels confident about her financial future as long as her job is secure

How she earns her income

  • Computer software technical professional
  • 1099 subcontractor earning $150,000 annual income

Planning considerations

  • Affordable protection with premium features
  • Protection for serious illnesses such as cancer or stroke
  • Cost of living adjustments for inflation
  • Ability to increase benefits as income grows
  • Strong carrier with a history of paying claims

As a professional Sarah was attracted to the plan’s tailored coverage options

Knowing that she was price-conscious, Sarah and her financial professional initially explored a more basic Essential package. But because Sarah was interested in potentially increasing benefits over time, they reviewed the added benefits available with Guardian’s Select package, including standard Benefit Purchase and Unemployment Waiver of Premium riders. Adding protection for student loan debt with the Student Loan Protection Rider also made sense for Sarah’s situation.

How Sarah’s Provider Choice policy worked for her

  • Select Package, $7,150 monthly benefit, 2-year True Own-Occupation Definition of Total Disability, Severe Disability, Student Loan Protection Rider
  • Her claim illustration below reflects a policy configuration* commonly recommended to professionals.

Sarah’s disability & impact****

  • Cancer
  • Unable to work for 18 months, returned to work part-time for two months, returned to full-time employment at 20 months.

Balancing parenthood and working full time kept Sarah busy, and she was caught off guard by her cancer diagnosis. Because her cancer was aggressive, she started a regimen of radiation and chemotherapy prior to surgery and was left with lingering fatigue. After 18 months, Sarah was able to return to work part time. After two months working only part time earning half her income, Sarah was ready to “get her life back” — with stamina and confidence and returned to work full time.

Ongoing benefits of coverage

Sarah’s policy has a built-in Waiver of Elimination Period: Because Sarah collected benefits and her disability lasted at least six months, if she suffers a subsequent disability within five years — even if her cancer comes back — Guardian will pay benefits immediately.

How to get a disability insurance policy

There are two basic ways to get disability insurance: Through your work or as an individual.

Your company may offer both STD and LTD as part of your employee benefit package. If you’re self-employed, you may be able to get disability insurance through a professional association. Either way, group disability insurance can be an excellent choice: Because the company or association is buying for a large group of people, the premium is typically lower than for an individual policy. In addition, your HR department (or the association’s management) will likely have more expertise and leverage to negotiate favorable terms. Your employer may also subsidize a portion of the premiums, further lowering your cost. However, if premiums are paid with pre-tax dollars (usually the case with employee benefits) then the income benefit later on will typically be taxed. Also, if you leave the company or association, in most cases you’ll lose your coverage. So even if you have some disability through work, it may be worth your while to look into an individual policy as well.

Individual disability insurance

When you purchase an LTD policy for yourself, it can provide better overall value because it is tailored to your needs. Since it is (usually) paid for with after-tax dollars, the benefit it provides is usually tax-free. It’s most often bought through a financial professional; if you don’t have one, or if that person doesn’t have much experience with disability insurance, a Guardian financial professional can give you a disability insurance quote. Because disability insurance is meant to replace income – it’s a key part of your overall financial plan. you should discuss disability insurance with your financial professional and be prepared to share as much as you can about your financial situation and goals, so that he or she can tailor your disability policy to your needs.

Frequently asked questions about how much disability coverage people need

Is it possible to get a policy that replaces 100% or more of your salary?

No. Insurance companies do not cover 100% salary. They will usually only cover about 50-70%

Don’t I have disability coverage through Social Security?

Social Security Disability Insurance (or SSDI), is a part of your Social Security benefits. However, it is usually much harder to qualify for benefits than a disability policy purchased individually or through work. Most SSDI applicants are actually rejected – and the benefits are typically lower than with a private disability policy. That’s why most experts say you shouldn’t rely on SSDI alone for income protection. (provide a source for this statement – name and date)

If I have a long-term disability policy, do I still need short-term disability coverage?

The most common disability situations are short-term and not eligible for long-term disability benefits. If you couldn’t work for 3-6 months and had no income would you or your family face financial hardship? If the answer is yes, then you may want or need short-term disability as well.

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1 Social Security Administration Fact Sheet, June 2020

Commissioner’s Disability Insurance Tables A and C, assuming equal weights by gender and occupation class

3 Integrated Benefits Institute, 2018 Health and Productivity Benchmarking, Long Term Disability.

Optional riders are available for an additional premium.


* This benefit is not necessarily protection against increases in the cost of living.

** The Rider provides coverage for period of 10 or 15 years from the Policy Date. When a qualifying total disability occurs, benefits are only payable during the remaining portion of the 10- or 15-year term that has not elapsed when the disability begins.

*** Conditions and limitations apply. Medical information is not required when applying to exercise an increase option. Taken into consideration are financial information as well as all disability insurance in force, for which you’ve applied or are eligible to receive.

**** An individual’s eligibility for benefits is determined on a case-by- case basis, taking into consideration the factual circumstances presented as well as the terms and conditions of his/her policy(ies).

2022-141342 20240731