What you need to know about disability insurance

Before the unexpected happens, understand your options for coverage.

You have insurance for your home and car, but you may be missing coverage for an even more valuable asset: your income.

Disability insurance replaces some or most of your income in the event that you can’t work for a period of time due to an event like a car accident or a serious illness. “Especially if you have kids or others who rely on your earnings, this is crucial insurance for someone between the ages of 20 and 50,” says Jeremy Kaneer, director, Retirement & Personal Wealth Solutions, Bank of America. A big hit to your income, even a temporary one, could create a major financial setback for your family. Here’s how to make sure you have the protection you need.

Consider the odds

“People don’t think that a disability is going to happen to them, so they think it’s not necessary to insure for it,” says Lynne McChristian, senior instructor and director of risk management and insurance research at the University of Illinois at Urbana-Champaign. “Many people tend to greatly underestimate their vulnerability.” But illness and injury can happen even if you’re young and healthy. In fact, data from the Social Security Administration shows that a 20-year-old worker has a 27% chance of becoming disabled during their working years, compared with a 6% chance of dying.

If you’re injured on the job, you may qualify for worker’s compensation, which is state regulated. However, only a small percentage of disabilities are a result of workplace injuries.

Decide what you need

There are two kinds of disability insurance: short-term, which provides coverage for less than a year, and long-term, which can last for years or even until retirement. About 40% of private industry employees have access to some kind of disability insurance as part of their benefits package—more commonly the short-term variety, providing three to 12 months’ worth of benefits (post-pregnancy leaves may be covered by short-term disability policies). However, two-thirds have no long-term disability insurance at all, according to the Social Security Administration.1

Even if you do have coverage through work, you may want to supplement it. Employer-sponsored long-term disability insurance plans typically cover only about 60% of your salary. Especially if you’re the primary wage earner, that may not be enough to support your family. Plus, when benefits are tied to your job, you typically lose access to them when you leave that job.

Figure out what you can afford

Buying disability insurance on your own can be pricey. Premiums generally cost 1% to 3% of your annual salary2 and will increase as you age. Those with a pre-existing or chronic health condition, such as a bad back or arthritis, will pay more. You’ll also pay more for a policy that provides coverage if your disability allows you to work in a different, perhaps less demanding, occupation.

To lower the cost, you can tinker with some of the variables that influence the price of the policy, says McChristian, such as the waiting period (the amount of time before benefits kick in), or the benefit period. Also, check whether you might qualify for group pricing through your employer or any associations to which you belong.

5 facts about disability insurance

	27% of workers become disabled at some point in their working life. Source: Social Security Administration.
	Two-thirds of workers in the private sector have no long-term disability coverage. Source: Social Security Administration.
	34.6 months is the average length of a disability absence. Source: Council for Disability Awareness.
	The leading cause of long-term disability claims are musculoskeletal disorders such as back and hip pain. Source: Council for Disability Awareness.
	60% of your salary is usually covered by long-term disability plans offered through work. Source: PolicyGenius.