1 in 4 workers will experience a disability before retirement. Disability insurance replaces your income if you can't work due to illness or injury. This guide explains your options and how to get the right coverage.
Disability Insurance Quick Facts
- Average cost: 1-3% of annual income
- Coverage amount: Typically 50-70% of income
- Waiting period: 30-180 days before benefits start
- Benefit period: 2 years to age 65
- Top causes: Back problems, cancer, heart disease, mental health
Short-Term vs Long-Term Disability
| Feature | Short-Term Disability | Long-Term Disability |
|---|---|---|
| Waiting Period | 0-14 days | 90-180 days |
| Benefit Duration | 3-6 months | 2 years to age 65 |
| Income Replaced | 60-70% | 50-70% |
| Cost | 1-3% of salary | 1-3% of salary |
| Common Source | Employer-provided | Individual or employer |
| Best For | Temporary conditions | Serious, lasting conditions |
Best Disability Insurance Companies 2025
| Company | Best For | Elimination Period | Max Benefit | Rating |
|---|---|---|---|---|
| Guardian | Overall coverage | 30-720 days | $25,000/month | |
| MassMutual | High earners | 30-365 days | $30,000/month | |
| Northwestern Mutual | Customization | 30-365 days | $20,000/month | |
| Principal | Value | 30-180 days | $15,000/month | |
| Ameritas | Self-employed | 30-365 days | $20,000/month |
Types of Disability Definitions
OWN OCCUPATION
Own-Occupation (Best Coverage)
- Pays if you can't do YOUR specific job
- Can work in different occupation and still receive benefits
- Most expensive but most protective
- Best for specialized professionals (doctors, lawyers)
ANY OCCUPATION
Any-Occupation
- Pays only if you can't do ANY job you're qualified for
- More restrictive definition
- Less expensive premiums
- Common in group policies
Key Policy Features
Elimination Period (Waiting Period)
- 30 days: Higher premiums, faster benefits
- 90 days: Most common, balanced cost
- 180 days: Lower premiums, need more savings
- Tip: Match to your emergency fund duration
Benefit Period
- 2 years: Cheapest, covers most claims
- 5 years: Middle ground option
- To age 65: Best protection, highest cost
Important Riders
- Cost-of-living (COLA): Increases benefits with inflation
- Future increase option: Buy more coverage later without medical exam
- Residual disability: Partial benefits for partial disability
- Non-cancelable: Company can't cancel or raise rates
How Much Disability Insurance Do You Need?
Coverage Calculation
- Step 1: Calculate monthly expenses (housing, food, utilities, debt)
- Step 2: Subtract other income sources (spouse, investments, Social Security)
- Step 3: That's your minimum benefit need
- Rule of thumb: 60-70% of gross income
- Example: $100,000 salary = $5,000-5,800/month benefit
Individual vs Group Disability Insurance
| Feature | Individual Policy | Group/Employer Policy |
|---|---|---|
| Portability | Keep if you leave job | Usually lose when leaving |
| Customization | Choose all options | Limited choices |
| Cost | Higher premiums | Often subsidized by employer |
| Tax on benefits | Tax-free (if you pay premiums) | Taxable (if employer pays) |
| Definition | Often own-occupation | Often any-occupation |
Common Exclusions
- Pre-existing conditions: Often 12-24 month look-back
- Self-inflicted injuries: Not covered
- Criminal activity: Injuries during crimes
- War or military service: Combat-related disabilities
- Certain mental health: May have limited benefit period
How to Apply
- Determine coverage needs: Calculate income replacement goal
- Get quotes: Compare multiple companies
- Complete application: Health history, occupation, income
- Medical underwriting: May require exam or records
- Policy delivery: Review and sign
- Waiting period: Coverage typically starts in 30 days