Why Disability Planning Is Financial Planning

Most people do not like to think about the possibility of being unable to work because of a serious illness or injury. Yet for many Americans, this is a very real risk. According to the Social Security Administration, more than one in four 20-year-olds will become disabled and qualify for Social Security disability benefits before reaching age 67.¹ Disabilities can range from cognitive impairments and mobility limitations to hearing or vision challenges.

Given this reality, it is important for individuals to prepare financially for the possibility of a disability that could interrupt their ability to earn an income. Disability insurance can play an important role in helping protect financial stability during these periods by providing income replacement when it is needed most. Coverage may be available through an employer-sponsored plan, an individually purchased policy, or certain government programs.

In this article, we explore what disability insurance is, why it matters, and how individuals can evaluate coverage options to help protect their financial well-being in the event of an illness or injury.

What Is Disability Insurance?

Disability insurance is a type of coverage designed to replace a portion of your income if you become unable to work because of an illness, injury, or qualifying medical condition. Depending on the policy, coverage may also apply to certain pregnancy-related complications or recovery periods. Disability insurance can help individuals continue paying for everyday expenses, such as housing, healthcare, and other financial obligations, while they are unable to earn an income.

There are two primary types of private disability insurance: short-term disability insurance (STD) and long-term disability insurance (LTD), each designed to address different income-protection needs. Coverage may be offered through an employer-sponsored group plan or purchased individually through a private insurer.

It is important to note that disability insurance generally covers non-work-related illnesses and injuries. Work-related injuries are typically covered through workers’ compensation insurance.

Short-Term Disability Insurance vs Long-Term Disability Insurance

Short-term and long-term disability insurance serve different purposes depending on the severity and duration of the condition preventing someone from working.

Short-Term Disability Insurance

Short-term disability insurance provides temporary income replacement if an employee is unable to work because of a covered illness, injury, or medical condition. These policies are intended to help bridge short-term interruptions in income while an individual recovers.

Most short-term disability policies replace approximately 40% to 70% of a person’s pre-disability earnings, though benefit amounts vary by plan. Benefits commonly last between 13 and 26 weeks, although some policies may extend coverage for up to one year.²

To qualify for benefits, an employee must provide medical documentation showing they are unable to perform the duties of their occupation. Documentation is typically provided by a licensed healthcare provider.

Short-term disability policies also include an elimination period, (sometimes called a waiting period) which is the amount of time between the onset of a disability and when benefits begin. Elimination periods commonly range from seven to 14 days, although some policies may have longer or shorter waiting periods. Certain policies may waive the waiting period for specific medical events or hospitalizations.³

Long-Term Disability Insurance

Long-term disability insurance provides income replacement if a medical condition prevents an individual from working for an extended period. LTD coverage is generally intended for more serious or long-lasting disabilities that extend beyond the duration of a short-term disability policy.

Most long-term disability policies replace approximately 50% to 70% of pre-disability earnings, subject to policy maximums and definitions of disability. To qualify, individuals generally must have a medically documented illness, injury, or mental health condition that prevents them from performing the duties of their occupation.

Long-term disability policies also include an elimination period, which can range from 30 days to two years depending on the structure of the policy.⁴ Many individuals use short-term disability benefits, paid leave, or personal savings to help cover expenses during this waiting period.

The duration of LTD benefits varies by policy. Some plans provide benefits for a set number of years, while others may continue benefits until age 65 or Social Security Normal Retirement Age if the disability persists and the individual continues to meet the policy’s definition of disability.

Some policies use an “own-occupation” definition of disability, meaning benefits may be paid if an individual cannot perform the duties of their specific profession. Others use an “any-occupation” definition, which generally requires that the individual be unable to work in any occupation reasonably suited to their education, training, or experience.⁵

Additional Considerations

For example, some policies place limits on benefits related to mental health conditions, substance use disorders, or pre-existing conditions. Additionally, the taxation of disability benefits may depend on who paid the premiums. Benefits from employer-sponsored plans paid with pre-tax dollars are often taxable, while benefits from individually purchased policies paid with after-tax dollars are generally received tax-free.

Because coverage terms differ from policy to policy, individuals should carefully review plan details and consult with a qualified financial professional or insurance specialist when evaluating disability insurance options.

How Do I Get Disability Insurance?

There are several ways to obtain disability insurance, including through your employer, by purchasing an individual policy, or through government programs such as Social Security Disability Insurance (SSDI).

Through Your Employer

Many employers offer short-term and long-term disability insurance as part of their employee benefits package. These group policies are often easier to qualify for and may be more affordable than individual policies because employers frequently cover a portion of the premium cost.

While employer-sponsored disability insurance can provide an important foundation of protection, it may not fully replace income for higher earners. Many group plans replace only a percentage of base salary and may exclude bonuses, commissions, equity compensation, and other forms of variable pay when calculating benefits. In addition, monthly benefit caps can limit the amount received during a disability.

As a result, highly compensated professionals, executives, business owners, and individuals with significant performance-based compensation may face a larger income gap if they become unable to work.

Individual and Supplemental Disability Insurance

If your employer does not offer disability insurance, or if you believe your existing coverage may not adequately protect your income, you may want to consider purchasing an individual disability insurance policy.

Individual disability insurance may be particularly valuable for higher-income earners whose employer-sponsored coverage replaces only a portion of their earnings. Depending on the policy and underwriting approval, individual coverage can supplement existing benefits and help provide additional income protection during a disability.

Some individuals also choose supplemental disability insurance, which is designed to work alongside employer-sponsored coverage. Supplemental policies may help address gaps created by benefit caps and may provide coverage for compensation that is not fully reflected in a group disability plan, such as bonuses, commissions, or other incentive-based income.

Unlike most employer-sponsored plans, individual disability insurance is generally portable, meaning coverage can remain in force even if you change employers. This can provide greater continuity and flexibility throughout your career.

Through Social Security Disability Insurance (SSDI)

If you become disabled and meet the qualifications for Social Security Disability Insurance (SSDI), you can apply for benefits online through the Social Security Administration (SSA) or by calling 1-800-772-1213.

If your claim was recently denied for medical reasons, you may be able to request a review through the SSA appeals process.

Understanding the SSDI Waiting Period

Even if you qualify for SSDI benefits, payments do not begin immediately. In most cases, SSDI benefits are subject to a five-month waiting period. Benefit payments typically begin in the sixth full month after the SSA determines your disability began.

The waiting period starts with the first full month following your established disability onset date. As a result, there may be a significant gap between when a disability occurs and when SSDI benefits are first received.

There is an important exception for individuals diagnosed with amyotrophic lateral sclerosis (ALS). If you are approved for SSDI benefits based on ALS, the five-month waiting period does not apply, allowing benefits to begin sooner.

Because SSDI benefits may take time to begin and approval is not guaranteed, some individuals choose private disability insurance to help replace income during a period of disability.

Important Considerations

Several factors can affect both your eligibility for coverage and the cost of disability insurance.

Why You Should Incorporate Disability Insurance into Your Financial Plan

Most people prefer not to think about the possibility of being unable to work because of a serious illness or injury. However, the inability to work due to an illness or injury can have significant financial consequences, making disability insurance an important consideration within a comprehensive financial plan.

For many individuals, their ability to earn an income is one of their most valuable financial assets. A prolonged interruption in earnings can affect day-to-day cash flow, long-term savings goals, retirement planning, and overall financial security.

This is particularly true for higher-income earners. Professionals, executives, business owners, and others with substantial earning power often have more at risk if a disability prevents them from working. Even a temporary loss of income can create challenges in maintaining lifestyle expenses and staying on track toward long-term financial objectives.

Determining How Much Coverage You Need

Selecting the appropriate disability insurance policy begins with understanding your income replacement needs. According to industry data, the average long-term disability claim lasts approximately 34.6 months, highlighting the importance of choosing coverage that can support your financial obligations for an extended period.⁶

A useful starting point is to evaluate your current monthly expenses and identify which costs would continue during a disability. While certain expenses may decrease—such as commuting costs, work-related meals, or professional wardrobe expenses—many core obligations, including housing, healthcare, insurance premiums, and household expenses, are likely to remain.

To estimate your income replacement needs, consider the following:

Current monthly expenses:
Less: Reduced expenses during a disability
Less: Income from other sources
Equals: Estimated monthly disability income need⁷

Integrating Disability Insurance with Your Financial Plan

Disability insurance should not be viewed in isolation. It works alongside other elements of your financial plan, including emergency savings, investment assets, and employer-sponsored benefits.

One important consideration is your policy’s elimination period—the waiting period between the onset of a disability and when benefits begin. Depending on the policy, this period can range from several weeks to several months. During that time, you may need to rely on emergency savings or other available resources to cover expenses.

For this reason, disability insurance and emergency fund planning often go hand in hand. Evaluating both together can help create a more resilient financial strategy and provide a clearer understanding of how you would manage a prolonged interruption in income.

Because disability insurance decisions involve balancing coverage needs, existing resources, and long-term financial goals, many individuals find it beneficial to discuss these considerations with a financial professional as part of their overall financial planning process.

Get In Touch with Us

Choosing the appropriate disability coverage involves evaluating income replacement needs, policy features, and how disability protection fits into your broader financial plan. Between evaluating your income replacement needs, comparing policy features, and understanding how insurers define disability, selecting the right coverage can feel overwhelming.

For individuals receiving or applying for Social Security Disability Insurance (SSDI), it is also important to understand how employment income and other factors may affect benefit eligibility.

This is where our team can help. We work with clients to evaluate their income protection needs, assess existing coverage, and determine how disability insurance fits within their broader financial plan. By coordinating disability insurance with your cash flow needs, emergency savings, and long-term financial goals, we can help ensure your coverage strategy aligns with your overall plan.

If you’d like to discuss your disability insurance options or review your existing coverage, please don’t hesitate to reach out.

1. Social Security Administration, Fact Sheet Social Security. Retrieved May 27, 2026, from https://www.ssa.gov/pubs/EN-05-10029.pdf. ↩︎
2. ADP Editorial Team. (2026, April 15). Short-Term Disability | What Qualifies | How it Works | ADP. https://www.adp.com/resources/articles-and-insights/articles/s/short-term-disability.aspx ↩︎
3. Maaa, K. L. F. (2025, November 7). When do Short-Term Disability Benefits start? Northwestern Mutual. https://www.northwesternmutual.com/life-and-money/when-does-short-term-disability-start/ ↩︎
4. Aflac Supplemental Insurance. (n.d.). Aflac. Retrieved May 28, 2026, from https://www.aflac.com/resources/short-term-disability-insurance/what-is-an-elimination-period-for-disability-insurance.aspx ↩︎
5. Disability insurance: Long-term & short-term | ADPIA®. (n.d.). Retrieved May 28, 2026, from https://insurance.adp.com/what-we-offer/health-benefits/disability-insurance.aspx#tab-a584dd7b-20e9-4903-9c68-833170e026b5-1 ↩︎
6. Guaranteed Renewable, Non-Cancellable Disability Insurance | Guardian. (2026, January 29). GuardianLife. https://www.guardianlife.com/disability-insurance/guaranteed-renewable-non-cancellable ↩︎
7. How Much Disability Insurance do I Need | Guardian. (2025, May 13). GuardianLife. https://www.guardianlife.com/disability-insurance/how-much-do-i-need ↩︎