Life Events

Your ability to earn an income is probably your largest financial asset. Disability insurance replaces part of that income if illness or injury keeps you from working. Here are answers to common questions.

Why would I need disability insurance?

Most people are more likely to become disabled for a period during their working years than they expect. Without income, mortgage payments, bills and savings goals do not stop. Disability coverage fills that gap. It matters especially for self-employed people and owners who have no employer plan to fall back on.

What is the difference between short-term and long-term coverage?

Short-term disability typically pays for a limited period, often a few months, while long-term disability can pay for years or until retirement age, depending on the policy. Many people rely on an employer for short-term coverage and consider a separate long-term policy.

How much does a policy pay?

Policies replace a percentage of your income, not all of it, so that there is still a reason to return to work. The exact percentage and maximum depend on the policy and insurer.

What is an elimination period?

It is the waiting period between the start of your disability and the time benefits begin. A longer waiting period lowers the premium, but you must be able to cover expenses during it, usually from savings.

How does the policy define disability?

This is one of the most important terms to read. An "own occupation" definition pays if you cannot do your own job, while "any occupation" pays only if you cannot do any job for which you are suited. Own-occupation definitions are generally broader and cost more.

Are the benefits taxable?

It depends on who paid the premiums. Generally, if you pay premiums with after-tax dollars, benefits are not taxed. If your employer pays the premiums, or you pay with pre-tax dollars, benefits are generally taxable. This can change how much coverage you need, so consider it when choosing between options. IRS guidance is available at irs.gov.

Does Social Security cover me?

Social Security offers disability benefits to those who qualify, but the standards are strict and the benefit is modest for many workers. See ssa.gov for details on eligibility. Most people treat it as a base, not a complete plan.

To think through how disability coverage fits into your overall plan, contact our firm.