Disability Insurance

Disability insurance complements health insurance by providing replacement lost income, in the event you become disabled and unable to work as a result of an accident or illness. 

At age 40, the average worker faces only a 14 percent chance of dying before age 65 but a 21 percent chance of being disabled for 90 days or more. 

Disability insurance helps to protect you or your family in just this event. 

There are three basic ways to replace income: 

Employer-Paid Disability Insurance - This is required in most states. Most employers provide some short-term sick leave. Many larger employers provide long-term disability coverage as well, typically with benefits of up to 60 percent of salary lasting from five years to age 65, and in some cases extended for life.

Social Security Disability Benefits - This can be paid to workers whose disability is expected to last at least 12 months and is so severe that no gainful employment can be performed.

Individual Disability Income Insurance Policies - Other limited replacement income is available for workers under some circumstances from workers compensation (if the injury or illness is job-related), auto insurance (if disability results from an auto accident) and the Department of Veterans Affairs. 

For most workers, even those with some employer-paid coverage, an individual disability income policy is the best way to ensure adequate income in the event of disability. When you buy a private disability income policy, you can expect to replace from 50% to 70% of income. Insurers won’t replace all your income because they want you to have an incentive to return to work. However, when you pay the premiums yourself, disability benefits are not taxed. 

Benefits from employer-paid policies are subject to income tax. 

NOTE: Portions of the above information have been graciously provided by The Insurance Information Institute at www.iii.org/individuals