What does disability insurance cover?

Disability insurance covers most common injuries or sicknesses, like chronic pain or cancer, whether or not they are workplace related. It can also help replace a large portion of your income, so you don’t miss out on your paycheck if you can’t work.

Understanding disability insurance benefits

What do you picture when you think of an injury that forces you to miss work? Most of us think of industrial accidents or other workplace calamities that result in great bodily harm. But it’s a myth that only people who work in dangerous professions need disability insurance. In fact, most long-term disabilities that cause lengthy absences from work are because of sickness. They happen far more often than you think.

With only a few exceptions, long-term disability insurance covers most unexpected medical issues that would cause you to miss work, allowing you to protect your ability to earn an income. Here’s some of the coverage it typically provides:

How can disability insurance money be used?

The short answer is that it’s your money, and you can use it for whatever you want. Disability insurance is designed to cover more than medical bills; it helps to replace a portion of your income, so your family can continue to lead the lifestyle they’re used to, even when you’re dealing with a disability.

What does disability insurance not cover?

While your long-term disability insurance coverage includes almost any unexpected medical issue, there are a few things that aren’t covered. Self-inflicted injuries and sicknesses or injuries sustained while committing a crime are typically excluded. Individual policies have additional exclusions and limitations, so make sure you read and fully understand any policy you are considering.

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

While they have many similarities, the two types of disability insurance protect you from different things. Most short-term disability policies are provided by an employer and cover short absences, from a few weeks to a couple of months. Long-term disability insurance, on the other hand, can sometimes be provided by your employer or can be purchased by an individual. It is designed to replace income lost to long-term or permanent issues, protecting you for a set number of years, like five, 10, or 20. Or until retirement at age 67, sometimes longer. These two types of policies generally work best when they are combined.

Related: Short-term vs. long-term disability

Alternatives to long-term disability insurance benefits

Individual long-term disability insurance may be one of the best ways to protect your lifetime earning potential, but it is not the only way to cover yourself during a long work absence. If you don’t have insurance, you might be helped by one of the following:

An emergency fund

Having an emergency fund is useful, no matter what your financial or life circumstances may be. The common advice is to have enough saved to cover three to six months of expenses. That would include your mortgage or rent, car payments, utility bills, and groceries. This can help bridge the gap if you are out for only a short time, but it will not replace your income, as it’s money you’ve already made.

Workers’ compensation

Often called “workers’ comp,” this is a government-mandated program that provides some benefits to those who are injured or fall ill, but only if the injury or sickness happened on the job or because of the job. It will not cover injuries or sicknesses that are not related to the workplace. Workers’ comp usually includes partial wage replacement for the time the employee cannot work, but these benefits vary greatly by state. It’s also important to understand that when you accept workers’ comp, you waive the right to sue your employer for damages. To look up what your workers’ comp benefits might be, check out your state’s .gov website.

Government programs

Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) provide some assistance to people with disabilities. However, “disability” is defined very narrowly by Social Security, and statistics from 2007–16 show that it should not be relied on for benefits. While it’s possible for any Individual Disability Insurance to be denied, over that time, 63% of SSDI claims were denied, and people who qualified received modest benefits. On average, recipients received $1,196.87 per month.²

Funding drives

It’s becoming more common for people to turn to crowdsourcing to help cover the costs of an illness or injury, via funding websites. When you have a wide network with many people who are willing to pitch in a bit, you can get  help covering costs and missed income. But bear in mind that less than 12% of these types of campaigns reach their goals.³

Why is it important to have disability insurance?

We insure our homes. We insure our cars. Many realize too late that the ability to earn an income is the most valuable asset most of us possess. Protecting income is an essential part of every financial strategy. To understand how important it could be to you, calculate your earnings for the next year, and then for every following year up to your planned retirement date. That’s your earning potential, and it is at risk of being lost. Disability insurance will help ensure that you and your family will be provided for, even if you can’t work.

How much disability insurance should I have?

Ultimately, you’ll have to balance what you are willing and able to pay in monthly premiums with the amount of disability insurance coverage you’ll receive should you become temporarily or permanently disabled. The average long-term disability claim is just under three years.⁴ Most people cannot go without a paycheck for even a few weeks. Keep that in mind when you prepare your financial protection plan. 

Related: The cost of disability insurance

How do I get disability insurance?

If you’re interested in learning more about disability insurance, the next step is to chat with a qualified agent. There’s no commitment to buy, and an agent can help you customize your policy, can explain the terms, and can give you multiple options for different premiums.

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