Understanding Disability Insurance

Written by: Scott Sery

30% of those in their 20’s will become disabled before the age of 65, so for those who do not want to risk their income, understanding disability insurance is the first step to being protected.  Disability insurance pays a monthly sum in the event the insured is unable to work.  There are different types of disability insurance, however, and each one can provide a benefit.  The same way auto insurance has a deductible, disability insurance has a deductible as well.  However, it is measured in time rather than a dollar amount.

Short Term Disability Insurance

Short Term Disability Insurance is often a group (employer provided) benefit.  If someone is injured and they cannot work for a short period of time, STD will kick in and replace a portion of that person’s salary.  Normally the worker must be injured for at least 7 days before benefits will start.  The benefits will end after 3 or 6 months (depending on the policy).  After this time a long term disability policy will go into effect.

Long Term Disability Insurance

Long Term Disability Insurance can be a group benefit, an individual policy, or a mixture of both.  Most group policies will insure about 60% of a person’s wage; this benefit is almost always taxable.  For individual policies a person can often protect up to 95% of their wage and the benefit is rarely taxable.  Those who are looking into individual policies will learn that the longer the waiting period (deductible) the less the insurance will cost.  Playing with the deductible is one way of helping to lower one’s expenses.


Aside from confusing disability insurance with health insurance (these are two distinct and separate insurances), the biggest mistake people make is thinking it only covers on-the-job injuries.  This could not be further from the truth, and in fact, worker’s compensation insurance is designed to cover those types of injuries.  Disability Insurance will kick in regardless of where or how the person is injured (with a few exceptions, such as if they are injured while committing a felony).

Another mistake that people make is confusing own occupation coverage and any occupation coverage.  A policy that is labeled “own-occupation” means that a person can go back to work in a reduced manner at a different job, and still collect their disability payments.  For example, a surgeon who injures his hands and can no longer perform surgery could go to work as a teacher.  The insured’s payments would not be reduced because of this added income.  In contrast, a policy labeled “any-occupation” states that if the insured can perform the duties of any occupation, not just the one they were working when becoming disabled, they are not totally disabled and therefore ineligible to collect full benefits.

For anyone who is looking into getting an individual policy, the best method is to be approved for the maximum the company will offer, and then figure out how much they can afford.  The lowest level of coverage they should consider is enough to pay the mortgage or rent.  This will ensure that in the event they do become disabled, they will at least be able to afford a roof over their head.

With the chances of becoming disabled before the normal retirement age so high, most people cannot afford to go without disability insurance.  Finding the right policy is as easy as finding a trusted company, and getting a quote.  A person can get insured for the maximum amount possible, or just enough to cover basic living expenses.  Either way, some coverage is better than none when a disability strikes.


Understanding Disability Insurance

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