What does disability insurance cover?

Do you have a financial plan if you are sidelined by illness or injury? Nearly one in four Americans who are 20 years old in 2024 will experience a disability that interferes with their ability to work before age 67, according to the Social Security Administration (SSA).

Disability insurance can replace lost income if you can’t work because of a health problem unrelated to your job. In 2023, however, only about half of U.S. workers had disability insurance, according to Guardian® Insurance.

Here’s what you need to know about disability insurance, including the types available and how to decide if it’s right for you.

Short-term disability insurance, also known as paid medical leave, replaces your income if you are sidelined by a temporary health problem. It usually lasts between three months and a year, according to ADP, a human resources and payroll company.

Common reasons for payout include accidents, injuries, illness, pregnancy and maternity leave.

Short-term disability usually replaces between 50% and 80% of your salary until you return to work or reach a predetermined limit. It’s often available through your employer—California, Hawaii, New Jersey, New York and Rhode Island require companies to provide coverage, though terms and limits vary.

Your employer may pay all or part of your premium, or you may have to cover it yourself. Some employers allow workers to purchase additional coverage beyond what they offer.

A top choice for customer service, Guardian has received very few complaints compared to other insurers and offers a variety of flexible short-term disability policies. You can increase cover if your salary rises or stop paying premiums if you lose your job. There’s also residual disability benefits that allow you to file a claim if your earnings or hours are reduced, rather than stopped, because of a health problem.

Designed for more serious illnesses or injuries, long-term disability replaces between 40% and 70% of your earnings for just 24 months or the rest of your working years, depending National Association of Insurance and Financial Advisors (NAIFA).

Most plans have a waiting period of three to six months before benefits kick in, according to the Patient Advocate Foundation, although it can be as long as a year. If you’ve combined it with short-term coverage, your long-term benefits will usually start when your short-term disability ends.

Long term policy i can also be issued through an employer or private insurer. However, employer-sponsored policies expire when you leave the company, while an individual plan is portable from job to job. Although premiums vary, an individual long-term disability policy typically costs between 1% to 3% of your salary, according to NAIFA.

One of the nation’s largest long-term disability providers, The Standard® has policies that can supplement your income until age 67. There is an automatic increase of 4% of the benefit per year for the first five years and policyholders can add more without the need for a medical exam.

You can add a rider that allows you to receive benefits while working in a different field and a catastrophic disability rider that pays out if you are severely disabled or unable to carrying out daily activities.

Supplemental disability insurance covers gaps in an employer-sponsored short-term or long-term policy. It offers higher payouts, longer coverage periods and tax-free benefits. And, unlike a workplace policy, additional coverage can be taken with you when you change jobs.

Mutual of Omaha offers excellent coverage in this space with its mutual income solutions, which provide short-term and long-term coverage, paying from $300 to $20,000 per month in $100 increments, depending on the policy. There’s also a no-cost automatic increase that increases your available payout by 4% each year.

Disability insurance can help anyone who relies on a salary, especially if they have a spouse, children, elderly parents or others depending on their income to support them.

Although Social Security offers a safety net for those injured or left behind by illness, the requirements are stricter and the benefits less stable: In December 2023, the average monthly Social Security disability check was just $1,395.

The best time to apply for disability insurance is before you need it, so you don’t have to worry about being turned down or getting hit with high premiums.

Most employers provide short-term disability coverage, according to the Insurance Information Institute, while about half of large and medium-sized companies offer long-term disability insurance.

It doesn’t protect the self-employed and business owners – and it doesn’t mean your company offers adequate coverage. Group disability plans typically have less flexibility, shorter coverage periods, and are more restrictive about what constitutes a disability.

If your company pays the premiums, you’ll have to pay state and federal income taxes on all payouts, according to the IRS.

Look at the disability benefits your employer provides compared to your income, debts and financial goals. If that’s not enough, or you’re self-employed, an individual disability insurance policy may be the right solution.

If you’re unable to work due to illness or injury, disability insurance can be a lifesaver—especially if other people rely on you for financial support. Find out if your employer offers a plan and if it provides enough protection. If not, consider individual disability insurance.

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