Disability Insurance 101

Disability insurance is something anyone who works and has earnings should consider. That’s because one in four people today will become disabled¹ and potentially face financial hardship at some point during his or her working life. Disability insurance income helps cover expenses if you can’t work because of an illness or injury. There are disability insurance policies tailored to workers in specific professions as well as disability insurance for self-employed individuals.

There are two main types of disability insurance: short-term disability insurance and long-term disability insurance. Short-term disability insurance covers lost income for about three months while long-term disability insurance typically pays a portion of your lost income for anywhere from one year to your entire life.

The main ways to get disability insurance are: through your employer, through a professional organization, or on your own. Buying disability insurance yourself, through an insurance company, is typically the most flexible and reliable way to get coverage. A financial professional can get you a disability insurance quote. You may also be eligible for government disability benefits as well—just be aware that they’re usually not enough to replace your lost income.

The cost of disability insurance depends on several factors. Just some include your benefit amount, benefit period, occupation, health status, age and terms of the policy. As a general rule of thumb, the disability insurance cost for a long term individual policy is 1% to 3% of your annual salary.

It’s always a good idea to review your disability insurance with a financial professional whenever you experience a life change. This can include accepting a new job, getting married, welcoming a baby, assuming new debt or receiving a substantial raise at your job. It’s also a good idea to review your disability insurance benefits once a year with the financial professional you work with to make sure everything is in good shape.

You can file a claim to receive disability benefits through your employer’s human resources department if your policy is through work or through the financial professional your work with if you bought the policy on your own. To receive disability insurance benefits, you will have to meet the disability definition as it’s defined in your policy. There may also be a disability insurance elimination period, which is a waiting period that can last anywhere from a few weeks to a few months before you can receive benefits.