What Is Disability Insurance?

Kacie Goff
Kacie Goff
Contributing Writer

You insure your car. You get coverage for your home and apartment. You have a policy to protect your health. You’ve put all of these pieces in place to give yourself peace of mind. But you’re not truly protected yet. Disability insurance is another critical piece of the puzzle. 

What Is Disability Insurance?

The easiest disability insurance definition is that it’s insurance that steps in to ensure you have a source of income if you become disabled. There are two types of disability insurance — short-term and long-term disability insurance — designed to protect you in (you guessed it) the short- or long-term if a disability makes you unable to work. 

If you have a disability policy in place and become disabled, your insurer pays you a percentage of your usual paycheck, usually as a monthly payment. If you have a short-term disability policy, these payments generally continue for no more than two years. If you have a long-term policy, the payments can continue until you’re able to return to work or until you reach retirement age (where Social Security payments kick in). 

So who needs disability insurance? Anyone who relies on their paycheck to make ends meet. Even if you’re in top health, the Social Security Administration reports that one in four adults will experience a disability of some type during their career. If you’re put out of work and would be financially stressed without your regular paycheck (and you’re not alone; 70% of people would feel the pinch within a month), having a policy in place can be a lifesaver. 

So whether you’re a recent college grad who hasn’t had the opportunity to build up your savings, someone nearing retirement who doesn’t want to leave your financial future to chance, or a new parent looking to protect your family, you might want to consider disability insurance. 

How Does Disability Insurance Work?

Getting a disability insurance policy is pretty straightforward. First, you need to pick the type of policy you want (short-term or long-term). Disability insurance for individuals usually comes in the form of a long-term policy, while employer-sponsored coverage is most frequently short-term. Generally, the longer your policy would pay out benefits, the more expensive it will be. But keep in mind that the cheapest policy may not offer the right amount of coverage for you. The last thing you want is to buy a policy only to have it run out when you really need it. 

To purchase a disability insurance policy, follow these steps:

  1. Shop quotes from multiple disability insurance companies
  2. Pick the one that best aligns with your budget and needs
  3. Submit an application and complete the required qualification steps, which usually include a health exam and phone interview
  4. Wait while your policy is underwritten based on your unique health info 
  5. Once approved, pay your premium

Now, let’s say you need to use your policy. If you have a short-term policy, you usually only need to wait a few days to a couple of weeks to start collecting benefits. Long-term policies have a longer waiting period (usually around 90 days) before benefits are available to you. Regardless, you want to start your waiting period as soon as possible so you can get those benefits coming your way quickly. To do that, file your claim with your insurer right away and make sure you promptly comply with any information requests. 

As far as how much you’ll collect in benefits, it again depends on the type of policy. Short-term coverage usually pays you for about 50-75% of your paycheck amount, while long-term policies pay out somewhere around 50% of your paycheck. When you’re shopping policies, look into the specifics to ensure you’re getting enough coverage to maintain your lifestyle. 

What Does Disability Insurance Cover?

Disability insurance activates in a wide variety of cases, including:

  • Cancer
  • Mental health disorders (read your policy because there may be limitations here)
  • Injuries
  • Most chronic diseases

If you’re disabled, unable to work because of that disability and can prove so with evidence from a doctor, your policy will generally go into effect. 

Once it does, disability insurance for individuals covers whatever you need it to cover. You get the benefits check from your insurer and you can apply it to whatever expenses you need, whether that’s your rent or mortgage, car payment, groceries, clothes, or anything else. 

While disability insurance may be redundant in the event you’re eligible for workers’ compensation, it’s best not to rely on this. Keep in mind, workers’ compensation will only cover you if your injury takes place in the workplace or while performing work-related duties. What if you throw out your back working in your yard? What if you get in a car accident over the weekend? Even if you are hurt at work, there are limits to how much wage replacement your company’s workers’ compensation policy offers. Once you hit that maximum, you’re on your own. That is, unless you have disability insurance. 

What Doesn’t Disability Insurance Cover?

Your disability policy can come to the rescue in an impressive array of situations. But it’s important to know that there are some exclusions. Generally, your insurer won’t pay you any benefits if you get hurt because of:

  • Something you did to yourself (i.e., self-inflicted harm)
  • War or military service
  • Engaging in civil disobedience
  • Driving while under the influence

Also, disability insurance can help you if you experience complications during pregnancy, but it won’t take effect during normal pregnancies. Some employers choose to offer short-term disability policies for pregnancy in place of defined maternity leave.

Exactly what your disability insurance does and doesn’t cover should be spelled out in your policy. Take the time to read the fine print so you know when you’re protected and — more importantly — when you aren’t. 

How Much Does Disability Insurance Cost?

Like all insurance policies, your disability policy cost depends on a variety of factors unique to you, like your age, occupation, health, and more. That said, we can guess at an average thanks to Gen Re’s 2018 U.S. Individual Disability Market Survey. They say, at the time of their research, that there were just over 3 million active policies with premiums totaling $4.8 billion. Use those numbers and you get an average annual premium of just shy of $1,600, or about $130 a month. 

Keep in mind, though, that just like life insurance for seniors, disability insurance costs are higher for older people because your risk of disability increases with age. The AARP cites a $3,400 annual premium for an average 50-year-old man and a $4,125 annual cost for the average 50-year-old woman. If you’re interested in this type of insurance, buying a policy with fixed premiums (meaning they won’t increase as you age) keeps your disability insurance cost as low as possible.  

Another great way to shrink the cost of this coverage? Purchase it as a rider that you add to your life insurance policy

Who Offers Disability Insurance?

Just like with any other insurance, it’s important to shop around for disability insurance. Make sure to compare policies from multiple disability insurance companies before purchasing a policy. Here are eight companies that offer disability insurance for individuals.

A.M. Best Financial Strength Rating J.D. Power Customer Satisfaction Rating (out of 1,000)* U.S. Market share (NAIC data)*
Northwestern Mutual A++ 812 6.42%
MassMutual A++ 781 4.19%
State Farm A++ 825 2.83%
Guardian Life A++ 776 2.46%
Protective Life A+ 791 1.47%
Unum Group A n/a 1.40%
Mutual of Omaha A+ 792 1.39%
Principal Financial A+ 773 1.28%

*J.D. Power and the NAIC don’t conduct disability insurance surveys. We pulled their life insurance ratings and market share info because the insurance types are similar and you may choose to buy disability insurance as a rider added to your life insurance policy.

How Do I Get a Disability Insurance Quote?

The above are all solid options to check out when you’re looking for disability insurance for individuals. But don’t just pick one policy and run with it. To make sure you’re getting the best price now and for years to come, compare quotes from multiple disability insurance companies. It’s free to get a quote, so you have nothing to lose. 

Unlike a lot of other types of insurance, most of the disability insurance options we’ve listed above don’t come with a simple quote form you can fill out online. Instead, the companies put you in touch with an agent. This is the perfect opportunity to get any questions you have answered by a pro to ensure you’re getting the right level of coverage. 

Disability insurance will help you maintain financial stability no matter what comes your way. Looking for other ways to safeguard your and your family’s wellbeing? Don’t forget to explore life insurance and long-term care coverage, too.

About the Authors

Kacie Goff

Kacie Goff Contributing Writer

Kacie Goff is a insurance and personal finance writer with over five years of experience covering personal and commercial coverage options.