Is disability insurance worth it?

Do you need disability insurance? If you depend on a paycheck to cover for your living expenses, the simple answer is yes. This article will provide answers to three other questions people commonly have about disability insurance:

  • What are the different kinds of disability insurance?
  • How do disability insurance policies work – and what should I look for?
  • How do I get the disability insurance I need?

The different kinds of disability insurance policies – and what they’re for

All disability insurance policies are designed to give you money if you become disabled. But not all types of disability are the same. There are different policies you can get:

  • Short-term disability insurance

Also called STD, this policy is for temporary disabilities and is designed to replace 60-80 percent of your income for a short period of time: typically 3-6 months (and almost never more than a year), or until you can get back to work.

  • Long-term disability insurance

Also called LTD, this type of policy is designed to last for many years – through retirement (age 65, 67, or Social Security’s normal retirement age) if needed – replacing 50-67 percent  of your income for an individual policy and about 40-60 percent under group long term disability if something happens and you can no longer work.

  • Social Security Disability Insurance

Also called SSDI, this is coverage that comes as part of your Social Security benefits. However, it is usually much harder to qualify for than a disability policy purchased individually or through work. SSDI applicants have a higher chance of rejection – and the benefits are typically lower than with a private disability policy, so experts say you shouldn’t rely on SSDI alone for income protection.

How disability insurance works, and what to look for in a policy

The basic concept of disability insurance is simple: If you become sick or injured and can’t work, you may receive benefits. But that simple statement describes an enormous range of real-life possibilities, so there are important issues that will need to be clarified before you can get a disability policy. That’s why you need to have an agreement – a mutually-binding contract – with an insurance company that answers the following questions about exactly how your policy will work:

1. What is the policy’s definition of disability?

Some types of catastrophic injury or illness make you clearly unfit for work, but other types may not be so obvious. There needs to be a clear understanding what it means to be disabled to qualify for benefits under your policy. There are several different definitions of disability and will vary by carrier. It may also spell out different specific levels of disability, such as a “partial disability,” along with the percentage of the total disability benefit you can receive under that definition.

There’s also another important issue that needs to be clarified in the definition of disability:

Own-occupation or any-occupation?

A long-term disability policy will include this distinction in its definition of disability, and the implications are important. With an own-occupation policy, you need only be disabled from doing your current work or profession in order to qualify for benefits. For example, a surgeon who can no longer use their hands to perform surgery would most likely qualify for benefits, even if that surgeon was otherwise healthy enough to do other work.

With an any-occupation policy, you only qualify for benefits if you can’t do any work. If you’re still able to work at some job – even in a much simpler, lower-paying position – you would not qualify for the full benefit amount, and you may not qualify for any benefit. That’s why this type of policy is almost always less expensive.

If you have a long-term disability policy through work, it will likely be split into an own-occupation portion (which typically lasts for 24 months), followed by an any-occupation portion. In this case, you may still qualify for disability benefits while working at either another job, or a modified version of your original occupation, while earning up to a certain percentage of your pre-disability salary.

Note that in a short-term disability policy this usually doesn’t apply, because the assumption is you will only be out of work a short time before returning to your present occupation. However, most policies do allow partial work while benefit payments are being made.

2. What’s the policy’s waiting period?

Every policy has a waiting or “elimination” period. This is the period of time you have to wait after you are disabled until the insurance company starts paying benefits. It will generally be shorter for an STD policy and longer for an LTD policy. It can also be longer or shorter depending on the specific carrier and policy: a longer waiting period will tend to lower your premiums somewhat, and a shorter waiting period will tend to raise them.

3. What is the benefit amount?

This is the amount of money that will be paid to you usually monthly once the elimination period has been met – clearly one of the most important aspects of a disability policy. Most financial professionals suggest you should look to replace about 60-80 percent of your after-tax income. speculative

4. What is the benefit period?

This is the maximum length of time that you can receive benefits. In a short-term policy, this will typically be between 3-6 months and almost never more than a year. For a long-term policy, there’s a much wider range of possibilities, and the benefit period could be as little as two years (as is the case with one of Guardian’s group policy options), or it could go all the way to age 65, 67 or Social Security’s normal retirement age (unless you recover from your disability).

5. What are the features and options of the policy?

Remember: a disability policy is a contract, and like many contracts it contains fixed terms and provisions, but there are also optional provisions, which are called riders. Make sure to go through all the provisions to understand the conditions of your contract and the circumstances under which you will be paid a benefit.

For example, there will likely be one or more provisions that say if you’re allowed to do any work – even part-time – while still qualifying for some benefits. One of the most popular optional provisions is a cost-of-living adjustment (or COLA) rider that states the insurance company will increase your benefit to account for inflation and/or cost of living increases.

6. How much will you pay for disability coverage?

Expect to pay between 1 to 3 percent of your annual income for disability insurance for an individual policy.2 If you receive disability coverage through work, the rate will vary. The actual premiums you pay for a policy will depend on the following factors:


The older you are, the higher your premiums


The fewer your medical issues, the lower your premiums

Smoking and risky activities

Smoking will raise the cost of your policy, as will other risky activities such as scuba diving and auto racing


If you have a high-risk occupation, or work in a dangerous environment (e.g., an oil rig), your premiums will be higher

Definition of disability

The broader the definition of disability, the higher the premium; own-occupation coverage will cost more than any-occupation coverage

Waiting period

A shorter waiting period will increase policy cost

Benefit length

The longer the insurer has to pay benefits, the higher the policy cost


The more income you need to replace, the higher the cost

Extra features

Many riders – such as the cost-of-living adjustment rider that increases your benefit for inflation – will also increase your policy cost

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How to get a disability policy

Other than SSDI, which is paid for as part of your Social Security premiums, there are two basic ways to get a disability insurance policy.

Group disability insurance through your work or an association

Your company may offer STD or LTD insurance as part of your employee benefit package. And 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 than an individual would to negotiate favorable terms, and they will act on your behalf to ensure the financial stability of the insurance company (more on that below).

An added benefit to getting a policy through your employer is that they may also subsidize a portion of the premiums, further lowering your cost. On the other hand, because the company or association is effective “buying in bulk,” you will probably have less opportunity to tailor the policy to your needs. If the premiums are paid with pre-tax dollars (which is common), then any benefit you receive down the road will typically be taxed. If the coverage is paid for by an employer, the benefits will be taxable. Finally, if you leave the company or association, in most cases you’ll also lose your coverage.

Individual disability insurance

This is a policy you purchase for yourself, so you can tailor it to your needs. As it is paid for with after-tax dollars, the replacement income it provides is also tax-free. It’s typically bought through a financial representative; if you don’t have one, or if that person doesn’t have a lot of experience with disability insurance, a Guardian financial representative can give you a disability insurance quote.

Have a group disability policy? Consider adding a supplemental policy.

This approach lets you take advantage of a low-cost group policy for a portion of your needs, then individualize your protection with a secondary policy. Here are a few of the many scenarios where that can make a lot of sense:

  • Your group only offers STD: Take advantage of this to get coverage the most common types of disability situations; then purchase an individual LTD policy tailored to your long-term needs.
  • The group disability benefit is capped: If the benefit is capped (or limited) to, say, $5,000 a month – and then taxed at a 25% rate – you’ll net $3,750. That may not be enough to live on comfortably.
  • The LTD benefit period doesn’t last to retirement: If your group LTD plan only has a 5 or 10-year benefit period, and you’re 20 years from retirement, that could be a problem. Talk to your financial representative about a policy that can fill the gap.

As we’ve said, disability insurance is one of the most individualized types of insurance you can get because every person’s situation is unique.

Finally, check the financial stability of your insurer before you sign

You want to be sure the insurance company will be around to pay a benefit if you need it – which could be years or even decades down the road. Fortunately, it’s easy to look up that information.

There are reliable independent sources for financial strength ratings (FSRs) which you can find online, including A.M. Best, Fitch Ratings, Moody’s, and Standard and Poor. As an example of the kinds of ratings to look for, here are Guardian’s FSRs:

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Social Security Fact Sheet


Council for Disability Awareness

Guardian’s Group Long Term Disability Insurance is underwritten and issued by The Guardian Life Insurance Company of America, New York, NY.  Products are not available in all states.  Policy limitations and exclusions apply.  Optional riders and/or features may incur additional costs. Plan documents are the final arbiter of coverage. This policy provides disability income insurance only.  It does NOT provide basic hospital, basic medical or major medical insurance as defined by the New York State Department of Financial Services.   

Policy Form # GP-1-LTD-15.

Guardian’s Group Short Term Disability Insurance is underwritten and issued by The Guardian Life Insurance Company of America, New York, NY.  Products are not available in all states.  Policy limitations and exclusions apply.  Optional riders and/or features may incur additional costs. Plan documents are the final arbiter of coverage. This policy provides disability income insurance only.  It does NOT provide basic hospital, basic medical or major medical insurance as defined by the New York State Department of Financial Services.

Policy Form # GP-1-STD-15.

Individual disability income products underwritten and issued by Berkshire Life Insurance Company of America (BLICOA), Pittsfield, MA. BLICOA is a wholly owned stock subsidiary of The Guardian Life Insurance Company of America (Guardian), New York, NY. Product provisions and availability may vary by state.

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).

Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

Links to external sites are provided for your convenience in locating related information and services. Guardian, its subsidiaries, agents and employees expressly disclaim any responsibility for and do not maintain, control, recommend, or endorse third-party sites, organizations, products, or services and make no representation as to the completeness, suitability, or quality thereof

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