Serious illness or injury is always a risk, no matter your occupation, hobbies, or daily routine. When you become disabled, your health is not the only thing at risk; being unable to work means losing much-needed income and the ability to provide for yourself and your dependents. A disability insurance policy can cover your lost income while you are disabled, allowing you to cover necessary expenses and focus on your recovery. The guide below will outline everything you need to know about disability insurance, including public vs. private, group vs. individual, and short-term vs. long-term coverage. Lastly, we review the best disability insurance companies, including our top picks below.
Understanding Disability Insurance
While a disability is usually not something that can be predicted or prevented, securing a disability insurance policy protects your income if you are unable to continue working. The financial support provided by a disability insurance plan can be crucial if you are unable to earn money while having to pay medical bills. According to the CDC, one in four adults living in the United States have a disability, with mobility disability being the most common.
The scope of disability coverage is wide, and varies by policy. For instance, while anyone can apply for public Social Security Disability (SSDI), many employees opt to participate in a group employer policy or purchase private coverage directly from an insurance company, as nearly 70% of SSDI claims are denied. Some of the main differences between disability insurance policies include length of coverage, qualifying conditions, and the amount of time that must pass between becoming disabled and beginning to receive benefits. This guide is meant to focus on private disability insurance purchased by an individual or as part of a group employer policy.
What Is Disability Insurance?
Disability insurance is a type of insurance coverage that pays income benefits to someone who cannot continue working as the result of a disability. One thing that sets this kind of coverage apart from other common insurance plans like health insurance or property insurance is that disability insurance wonâ€™t cover the direct costs of the disability itself. Instead of covering medical expenses, it will cover the income lost due to an inability to keep working. In a way, it functions like business income insurance, but for individuals. However, itâ€™s important to keep in mind that disability insurance usually wonâ€™t cover all of the lost income, but rather a percentage of it, helping to mitigate financial fallout when work is interrupted.
How Does Disability Insurance Work?
While coverage lengths and other details vary between disability insurance policies, most plans have a few basic elements that apply across the board. The following details will apply to most group disability and privately purchased policies.
Your premium is the monthly fee you pay for your policy, and it depends on a number of factors, including your occupation and any pre-existing medical conditions. Your monthly benefit is the amount of money you receive when not able to work because of a disability.
A benefit limit is a cap on how much money you receive monthly, and can be either a maximum payout set by your insurer, or a certain percentage of your regular income (for example, 60%). Some insurers may offer an option known as high-limit disability insurance, which defines plans meant for high-earning or high-risk occupations. The function of these plans is to provide additional coverage in cases where average benefit limits donâ€™t provide enough protection. Examples of high-limit disability plans include those meant for physicians, surgeons, chiropractors, pilots, and athletes, among other high-income professions.
Your waiting period is the amount of time between becoming disabled and beginning to receive monthly benefits. Also known as an elimination period, this block of time will vary depending on whether you have a short- or long-term policy. While this guide will discuss the difference between the two in greater detail later, itâ€™s important to be aware that short-term disability insurance covers income loss from temporary disabilities, while long-term policies are designed for people experiencing more severe or chronic conditions lasting multiple years.
All disability insurance plans have unique definitions of what actually constitutes a disability. This definition may also include more specific subgroups, like total and partial disability. Certain thresholds need to be met in order to qualify for the different disability definitions, which are based on how severe or long-term your circumstances are. Exclusions can apply depending on the plan.
After a disability takes place, the process of filing a disability claim is similar to many other types of insurance. As you would in instances of property damage, crime, or other losses, you will need to provide proof of your disability as it fits into your insurerâ€™s definition. You will usually need to submit certified medical documents attesting to the disability and fill out paperwork provided by the insurer as part of the claims process, which often takes place through an online portal. The claim then gets reviewed and accepted or denied. In case of the latter, you can usually appeal the insurerâ€™s decision.
Types of Disability Insurance Policies
There are a number of different disability insurance policy types to be aware of as you compare your options. In the sections below, we will review the differences between public (e.g. federal and state) and private disability policies, group vs. individual policies, and short-term vs. long-term disability insurance.
Federal & State vs. Private Disability Benefits
While this guide focuses primarily on private disability insurance, the federal government and a few select states can also provide benefits if you qualify under their respective programs. The table below summarizes the key differences between the various private and public options.
|Typical Benefit Period||Typical Waiting Period||Typical Monthly Benefit Limit|
|Social Security Disability||Up to retirement||5 months||Up to $3,345 (as of 2022)|
|State Disability||Up to 1 year||7 days||Up to $1,129|
|Private Long-Term||Up to retirement||90â€“180 days||60% of earnings|
|Private Short-Term||3, 6, or 12 months||7â€“30 days||60% of earnings|
The U.S. federal government offers two forms of disability through the Social Security Administration: Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI). The former is funded through general tax revenues and is designed for needy individuals with limited income, while the latter is funded through payroll taxes and meant for individuals who are â€œinsuredâ€ as a result of their own payroll contributions (or those made by a spouse or parent).
The majority of SSDI claims are rejected, meaning that financial recuperation is not guaranteed if an individual relies solely on federal assistance. A few of the main qualifying factors for SSDI benefits include providing proof that you cannot continue working in your most recent workplace, cannot adjust to a new workplace, and are expected to be out of work for at least a year.
California, Hawaii, Rhode Island, New York, and New Jersey all offer disability benefits sponsored at the state level. Covering only individuals who can be considered â€œtotally disabledâ€ (remember that this definition can vary across policies), these state plans offer short-term benefits to individuals unable to work. While SSDI benefits can last until a claimant retires, state plan benefits are temporary. Each of the five states has its own set of requirements and conditions, so adequate research is necessary before pursuing one as an option.
Unlike government-sponsored disability programs, private disability insurance includes any plan that has been purchased by an individual or offered through an employer. These plans often offer a range of choices when it comes to benefit limits, qualifying factors, and plan lengths. One main difference between private and public benefits is that private plans are generally easier to qualify for. Private plans also offer more types of protection, and broaden eligibility to those with less severe or less permanent disabilities.
Another difference between a private and SSDI plan is the waiting period. While SSDI benefits have a five month waiting period, a private policy may have a much shorter one, hovering around two weeks for the average short-term policy. The Hartford, for example, offers no waiting period for its short-term disability insurance policy, with certain benefits beginning on the date of injury.
Group vs. Individual Disability Insurance
Covering a percentage of an employeeâ€™s income in case of disability, group disability insurance is provided by an employer. Both small businesses and large companies can offer group disability insurance as part of their benefits package, offering employees income security in case of unexpected medical circumstances.
According to the Employee Benefits Survey (U.S. Bureau of Labor Statistics), 43% of private industry workers have access to employer-sponsored short-term disability insurance, while just 35% have access to long-term disability insurance. In both instances, benefits cover a median 60% of an employeeâ€™s annual earnings, and only about 10% of workers are required to contribute money towards the disability insurance premiums. In these partially employee-funded group disability plans, an employee would, for example, pay 40% of a given premium, while their employer would cover the remaining 60%. As long as the company is covering a portion of the disability insurance premiums, the employee will be responsible for paying some amount of income taxes on the benefits received. If, on the other hand, the employee pays 100% of the premiums or purchases a policy individually, the benefits received from disability are not subject to tax.
While group disability plans generally include all participating employees no matter their age or medical history, one drawback is that they are tied to a single job. When your time at that job comes to an end, youâ€™ll have to be sure your new position offers similar coverage, or switch to a more reliable individual disability insurance plan.
Individual disability insurance is purchased directly from an insurer and also covers part of your income in case you experience a disability. Compared to group disability, individual disability insurance can be much more flexible, as you can choose the specifics of your policy and keep the same plan as you change jobs. Itâ€™s important to note that you can hold both group and individual disability coverage at the same time. And as mentioned prior, unlike with group disability plans, the benefits received from individual policies are not taxed.
While individual insurance policies offer more flexibility than employer-sponsored plans, they can be expensive. Since individual plans take into account factors like your medical history, age, and occupation, premiums are not uniform across the board. Increased age or pre-existing conditions, for example, can make you more prone to disability, resulting in a higher premium.
Since an employer-provided disability policy usually wonâ€™t cover more than 60% of your lost income for a certain period of time (and might also cap out at a certain dollar amount), individuals often purchase supplemental disability insurance. This kind of individual coverage ensures extra income protection on top of the benefits offered by another policy. While the amount of extra money you can receive will vary, supplemental disability insurance is designed to bring your benefits closer to the actual amount of income lost while you are unable to work for a period of time that makes sense for your situation.
Short-Term Term vs. Long-Term Disability Insurance
When it comes to choosing policies, youâ€™ll notice two main types of disability insurance: short-term and long-term. While they are meant to complement one another, whether you choose one or both will depend on your budget, the nature of your job, and a number of other factors. Though it may be unaffordable for many individuals, having both short- and long-term disability coverage is the best way to protect your income under a wide range of medical circumstances.
Short-term disability policies provide coverage for temporary disabilities. The coverage period of this kind of policy usually lasts less than a year, making it ideal for incidents like broken limbs, temporary bouts of illness, and other ailments with a short recovery period. Along with their coverage periods, short-term plans also offer shorter waiting periods, generally lasting about two weeks. These policies can also sometimes cover a higher percentage of your lost monthly income.
Long-term policies, on the other hand, cover about 60% of your monthly income and are designed for cases of long-term or permanent disability. These kinds of policies can last two years or more, and can also extend until retirement age. Waiting periods for long-term plans generally last 3â€“6 months (although this can be up to a year or more), meaning youâ€™ll be waiting longer for benefits to begin paying out.
While securing both short- and long-term disability insurance is the best way to make sure youâ€™re fully covered in cases of temporary and permanent disability, buying short-term disability insurance as an individual may not be an affordable or wise option. For individuals purchasing their own coverage, long-term disability insurance is generally recommended over its short-term counterpart, as it keeps you covered for longer and in cases of more severe disability. More on whether it makes sense to buy short term disability insurance is discussed below.
Disability Insurance Coverage & Endorsements
As discussed above, disability insurance covers a portion of lost incomeâ€”usually around 60%â€”resulting from a qualifying disability. Coverage can last for a few months or for decades, depending on the type of policy in place. However, disability insurance is a complex product, and there are a number of sub-policies, exclusions, and special circumstances to keep in mind, which are detailed below.
Own Occupation Coverage
Definitions of what constitutes a disability vary across policies, and there are a number of terms companies use to delineate their individual requirements. Under â€œown occupation coverage,â€ for example, an individual receives coverage if their disability prevents them from successfully performing the tasks of the specific position they held when they became disabled.
If, for example, a surgeon is suddenly unable to perform surgery due to a hand injury, they are considered unable to continue working within their â€œown occupationâ€ and will receive full disability benefits. This is considered one of the most comprehensive forms of coverage since it will provide disability benefits even if the individual could theoretically work in a different health care setting.
When filing a claim under this type of policy, a client must clarify the physical demands of their position and then outline how their disability prevents them from meeting those demands. Medical documents and opinions will constitute the bulk of evidence the individual must provide.
Any Occupation Coverage
â€œAny occupation coverage,â€ on the other hand, defines an individual as disabled only if they are unable to perform the tasks required by any occupation that could be suitable for them based on their age, experience, and education. This includes jobs outside of the one held immediately before the disabling event, even if the job pays significantly less. This is considered a much less comprehensive form of coverage and is subsequently less expensive.
If the same injured surgeon from the example above is able to work in the hospital as a physician without performing surgery, their disability would not qualify under any occupation coverage. Only if the surgeonâ€™s disability entirely prevented them from working as a doctor in any capacity, could they collect disability.
Presumptive Disability Coverage
Presumptive disability coverage is designed for cases when total disability is nearly certain, such as the loss of limbs or blindness. Applying to severe disabilities, presumptive disability does not have a waiting period and can offer lifetime benefits. While presumptive disability coverage may be included in your initial policy, sometimes it needs to be purchased separately as a rider. Presumptive disability can be crucial in cases of serious injury or illness, when the need for immediate benefits is urgent. It can also benefit those who have applied for Social Security Disability Benefits but cannot afford to wait for their Social Security Disability claim to be finalized.
When it comes to Social Security Disability Insurance, presumptive disability coverage allows an individual to collect benefits even while the evidence of their claim is still being processed. This option is only offered to individuals who make below a certain income limit and provide evidence indicating their initial claim is expected to be approved. Similar to what was mentioned above, certain severe disabilities are more likely to qualify under presumptive disability coverage.
Catastrophic Disability Rider
A catastrophic disability rider is a special clause you may come across in long-term disability policies. This rider offers a higher monthly payout (up to 100% of income) if the disability meets the policyâ€™s definition of â€œcatastrophic disability.â€ Most often, a catastrophic disability defines an injury or illness that renders an individual unable to go about daily functions, including eating, dressing, or performing personal hygiene. While this clause is not available in every policy, it can provide much needed emergency coverage in the event of a sudden and severely debilitating disability.
Partial Disability Rider
A partial disability rider is a clause that applies when an individual becomes able to return to work, albeit not in their previous full capacity. If the insured is able to perform some tasks or work part-time, a partial disability rider will pay a certain percentage of the monthly benefits stated in the original policy proportional to the amount of work performed. For example, after the insured is well enough to go back to work on a part-time basis, he or she might receive half of their original monthly benefits instead of the full amount.
Mental Illness Coverage
Mental illness coverage extends disability benefits in the event that a psychological issue prevents the insured from working. However, mental illness is a broad term, encompassing multiple kinds of disorders and conditions. Because of this, mental illness coverage varies widely across insurers, with specific guidelines as to what each company considers a disability.
When it comes to Social Security Disability Insurance, a number of mental conditions may qualify for benefits, including depression, anxiety disorders, and others. An official medical diagnosis is one of the eligibility requirements, along with records of treatment and symptom documentation.
While pregnancy may not immediately come to mind as a disability, it has the potential to seriously affect an individualâ€™s income, health, and ability to work regularly. According to the CDC, over 50,000 women across the country have serious pregnancy complications each year. Both long- and short-term disability insurance plans will generally cover medical complications that take place during pregnancy, but not all will cover the delivery period itself.
Short-term disability insurance with pregnancy benefits is important to consider while pregnant, because it has a much shorter waiting period than its long-term counterpart. Complications during pregnancy require immediate attention and arise abruptly. Waiting two weeks for benefits to start coming in as opposed to three months makes a huge difference, especially as an entire pregnancy period only lasts nine months. Though their coverage only lasts a couple of months, many short-term plans will also cover a new motherâ€™s time off work during and immediately after giving birth. This provides income security after a baby is born, especially if paid leave is not an option for the mother.
Student Loan Protection
Experiencing a disability while owing student loans can be debilitating, both physically and financially. A student loan rider is a special clause some disability insurance policies contain to mitigate the effects of a disability for individuals struggling with student loan debt. Known for their affordable monthly premiums, student loan riders wonâ€™t increase monthly insurance costs much, while providing benefits to cover student loan payments after an individual becomes disabled. These payments are usually sent directly to the lender as opposed to the insured, and can total up to about $2,500 in monthly benefits.
Cost of Living Adjustment
A cost of living adjustment (COLA) or inflation protection rider is another type of rider that some insurance companies offer as part of their disability policies. Usually available for purchase as an addition to your policy, this riderâ€™s function is to adjust your monthly benefits yearly as living costs increase. These adjustments are based either on a predetermined percentage or rely on the Consumer Price Index. While these riders are known to be pricey, they can protect against rising costs.
While seemingly attractive on the surface, COLA riders donâ€™t always make financial sense. Whether or not adding a COLA rider to your policy is worth it depends on a number of factors including your age, monthly benefit, benefit period, and premium. This article on Deciphering the COLA Rider does a nice job breaking down the calculations one would need to make in determining whether a COLA rider is right for them. To summarize, COLA riders make more sense for people who are early in their careers, looking to max out the amount of disability benefits they qualify for.
Retirement Contribution Protection
Similarly to student loan protection riders, retirement contribution protection can help you keep setting aside money for your retirement even after the interruption of a disability. If you become disabled, retirement protection provides a monthly benefit that matches your monthly retirement plan contribution amount. Paid throughout your disability, this benefit money is usually placed in a trust, which is invested and ultimately paid out as retirement income once you reach retirement age.
What Wonâ€™t Disability Insurance Cover?
What constitutes a disability varies between companies, but certain exclusions apply to the majority of disability insurance policies. Common exclusions include disabilities that are the result of criminal offenses, armed combat, or self-inflicted harm.
Since coverage requirements depend on the insurer, itâ€™s important to read the policyâ€™s guidelines carefully. Common reasons for denial of coverage include unclear medical records, gaps in an individualâ€™s medical history, and certain mental illnesses. An insurer may also determine that an individual is, in fact, able to continue working despite their claim that they are unable to do so.
Disability Insurance vs. Workersâ€™ Compensation
Workersâ€™ compensation and disability insurance cover different aspects of unpredictable injury or illness, meaning they work well together to provide you with a full range of coverage. However, when considering what benefits are available to you, itâ€™s important to be aware of the differences between the two policy types, especially if your workplace provides both or youâ€™re considering purchasing your own disability policy.
Workersâ€™ compensation insurance covers a variety of costs that stem from job-related injuries and illnesses. These can include medical bills, partial replacement of lost income, and retraining costs. The most important thing to note here is that workers’ comp only covers injuries and illnesses that occur at work. Disability insurance, on the other hand, extends coverage to injuries and illnesses that take place outside of work, but it only covers a portion of lost income.
While businesses are required to provide workersâ€™ compensation in nearly all states, offering employees disability insurance is not required. While some employees do take advantage of group disability insurance if provided by their employer, many choose to pursue individual disability insurance plans. Workersâ€™ compensation, on the other hand, can only be provided by an employer and cannot be purchased on an individual basis.
Disability Insurance vs. Critical Illness Coverage
Critical illness insurance employs more specific coverage requirements than disability insurance. Covering a predetermined set of conditions that can include heart attacks and strokes, critical illness coverage offers a large up-front benefit as opposed to monthly payments like disability insurance. Critical illness coverage also doesnâ€™t employ waiting periods and can cover people other than the insured, such as a spouse.
Offering immediate benefits in case of specific diagnoses, critical illness coverage can work in conjunction with disability insurance to protect your income and cover certain unexpected costs.
Disability Insurance Requirements
While employers are not required to offer their workforce disability insurance by federal law, certain states have their own requirements. California, New York, New Jersey, Rhode Island, and Hawaii all require employers to provide their staff with short-term disability coverage; however, the rules vary from state to state. In California, for example, disability insurance is usually paid through employee payroll deductions; however, some employers offer private plans instead. In New York, on the other hand, employers have the option of purchasing private group insurance, obtaining coverage through the state fund, or self-insuring.
State Disability Insurance
The five states mentioned above have their own State Disability Insurance programs, which eligible employees have access to. These programs offer partial income replacement to those who are unable to continue working because of a disability suffered outside of work.
Maximum benefit periods vary per state, with New York, Hawaii, and Puerto Rico offering up to 26 weeks, Rhode Island topping out at 30 weeks, and California offering up to a full year (52) weeks of benefits. While a higher pre-disability income usually means youâ€™ll receive more money in benefits, each state has its own limit to how much can be paid out in benefits. For example, Californiaâ€™s maximum is more than six times higher than New York’s. Since state disability insurance is temporary, the waiting period for benefits is short, usually totaling about seven days.
Who Needs Disability Coverage?
Though you may assume disability insurance is meant for those who perform physical labor, disability protection keeps you covered under a variety of circumstances that often have nothing to do with your occupation. From pregnancy to mental illness, disability insurance mitigates the financial fallout from a number of conditions, which can be most debilitating when they happen unexpectedly.
Like any other employee, self-employed workers are at risk of injury and illness, no matter what their occupation. Both short- and long-term disability insurance plans are a good option for self-employed individuals, provided they can verify their pre-disability income. Partially covering lost income, disability insurance works the same for self-employed individuals as it does for anyone else.
Self-employed workers running a small business should highly consider a disability overhead expense policy along with regular disability insurance. A disability overhead expense plan protects your business in case you become disabled and canâ€™t perform regular tasks. This is especially important if youâ€™re the owner and the sole employee of your business. Disability overhead expense insurance provides benefits that you can then use to cover business expenses. Coupled with personal disability insurance, it can help keep your business on its feet while you recover.
Construction & Other High-Risk Occupations
One of the main details to be aware of when it comes to disability insurance for workers in high-risk occupations is that premiums tend to be more expensive the more dangerous the work conditions. Consequently, people working in industries like construction face higher monthly costs for disability insurance policies.
Physicians & Other High-Paid Professionals
When it comes to having a portion of their income covered by disability insurance, high-earning individuals may not receive enough income protection from a standard disability insurance plan. This is because most insurance companies set predetermined limits of how much the insured can receive in monthly benefits. For high earners, that limit may not come close to covering, for example, 50% of lost income.
Consider a policy limit of $12,000 per month. Under that policy, a physician, executive or other professional making $500,000 a year will only have a quarter of their lost income covered per month, which may make it difficult to maintain a pre-disability standard of living. This is especially problematic when it comes to group long-term disability plans, which can group together employees earning vastly different salaries.
High-limit disability insurance is an additional type of policy meant to ensure that high-earning claimants receive a certain percentage of their income no matter how high it is. These plans usually operate on an own occupation basis and can provide single-sum payouts in addition to (or instead of) monthly benefits, depending on the unique terms of the plan.
The Pros & Cons of Disability Insurance
Like all kinds of insurance, disability insurance has its benefits and drawbacks, which depend on a number of factors.
At its core, disability insurance is designed to protect one of your greatest financial assetsâ€”your earning potential. With the right policy in place, you and your family will have peace of mind knowing that should you experience a disability that prevents you from doing your job, your income, other assets, and living standards will be protected. Without disability insurance, your family could quickly accumulate debt, default on loans, or experience bankruptcy in the event of an accident or illness. In fact, disability is one of the leading causes of foreclosure and bankruptcy in the U.S.
The biggest downside to disability insurance is cost. The reason disability policies cost so much is that there is a high likelihood that the company will need to cover a claim. Most people arenâ€™t aware of this, but about 25% of U.S. adults have some type of disability.
Another downside to disability insurance is the elimination period, also known as the waiting period, which functions like a deductible. For short-term disability policies, the elimination period is usually two weeks, but for long-term policies, elimination periods can be months long or more. Depending on your financial situation, you will want to make sure that you have enough money saved to cover expenses during the period in which the policy will not pay out benefits.
The last big downside to disability insurance is actually filing a claim to prove your disability. Policies differ significantly regarding what constitutes a disability, and as a result, have different requirements for providing evidence supporting the claim. Certain policies offer broad coverage, covering you in the event of most things that could prevent you from doing your specific job. Other policies will only approve a claim if you are unable to work in any capacity (even if itâ€™s in another role for reduced pay), provided the position is appropriate for your level of experience.
With these things in mind, itâ€™s important to distinguish between short-term and long-term disability insurance when evaluating whether or not the policies are worth it. Experts generally agree that for most people, purchasing private short-term disability insurance is not worth it given its relatively high cost and short benefit period. Most people will be better off saving their money and creating their own short-term emergency fund to cover the types of circumstances that would qualify for short-term disability coverage. That said, workers should participate in any short-term disability insurance offered for free (or at a subsidized rate) through their employer.
Long-term disability insurance, on the other hand, is a solid financial choice for a wide range of individuals. It is similar in cost to short-term disability insurance, but the benefit period is much longerâ€”lasting years or up to retirement age. While it is feasible for someone to save up to six months or a year of income, which is what short-term policies are designed to cover, very few people have multiple years, decades, or a lifetime of income saved up. This is why long-term disability policies make more sense. The caveatâ€”and reason why long-term policies are fairly affordableâ€”is that the probability of experiencing a disability that lasts for years is much lower. So while youâ€™re far less likely to ever use your long-term disability coverage, the protection it provides against drastic circumstances is worth the cost.
Disability Insurance Costs & Premiums
Disability insurance costs vary based on a number of factors. The premium, or your monthly fee, depends both on the insurerâ€™s rates and your personal details, such as your occupation, income, and medical history.
How Much Does Disability Insurance Cost?
Both long-term and short-term disability insurance cost between 1% and 3% of pre-tax income annually. So for a person making $100,000 per year, they can expect to pay between $1,000 and $3,000 annually (or $83â€“$250 monthly) for coverage. Individuals who choose broader coverage options and riders can expect to pay premiums at the upper end of this range; whereas, individuals with basic coverage can expect their costs to be at the lower end of the range.
How Much Disability Insurance Do You Need?
Disability insurance is designed to replace a portion of your pre-tax income, ranging from approximately 40% to 80%. According to the U.S. Bureau of Labor Statistics, most disability policies target 60% of pre-tax income, which means that the benefit payments will be similar to your previous take-home pay. However, individuals may choose to adjust this 60% figure up or down depending on factors such as current savings, their spouseâ€™s income, current expenses, and whether or not those expenses would change in the future.
Factors That Affect the Cost of Disability Insurance
A variety of factors can affect disability insurance premiums, the most important of which are described below:
- Income level: Since disability insurance is meant to replace a percentage of your income, the higher your income, the more expensive your policy will be. A person making $200,000 a year, for example, can expect to pay about double what someone making $100,000 a year would pay.
- What disabilities are covered: What disabilities qualify for coverage will impact premiums. As discussed above, whether your policy is written on an â€œown occupationâ€ or â€œany occupationâ€ basis is one of the most important factors. Own occupation policies are generally more expensive because they provide more comprehensive coverage than any occupation policies. The same is true for policies that include things like partial disability coverage, mental health coverage, or pregnancy benefits.
- Benefit period: The longer you receive benefits, the higher your premium will be. State Farm, for example, offers disability insurance benefit periods of one or three years for short-term plans and five years or up until age 67 for long-term policies.
- Waiting period: The opposite is true for waiting periods. Waiting for benefits when youâ€™re in distress is understandably difficult, but choosing a longer waiting period of, for example, six months instead of one year, will lower the cost of your premium.
- Occupation: As mentioned above, working in high-risk industries like construction may incur higher premiums. High-earning occupations, like medicine, law, and sales see greater incomes, leading to higher premiums as well.
- Medical history: Medical history plays an important role in determining the cost of disability insurance. A history of medical conditions or health problems are a sure cause for higher premiums. Itâ€™s also important to note that if a pre-existing condition is the cause of the disability claimed under your policy, your benefits may be affected or even denied. Insurers also consider family history and habits like tobacco use when reviewing medical histories.
Finding Cheap Disability Insurance
Most disability insurance carriers offer a variety of plan options with customizable elements. Designing a plan that fits your budget can help you save money while protecting at least a portion of your income. Here are a few strategies for lowering your disability insurance premiums and creating a cheaper policy.
- Pick a longer waiting period: While opting for a shorter benefit period is one way to save money on a disability insurance policy, itâ€™s not always the smartest move since you could be missing out on important coverage in the event of a long-term disability. Choosing a longer waiting period, on the other hand, is a good choice if you have an adequate amount of money saved to cover your expenses during this period. By choosing a one-year elimination period or longer, you can significantly reduce your premiums and make use of your disability policy only in extreme circumstancesâ€”for disabilities lasting multiple years.
- Opt out of unnecessary riders: While policy add-ons like cost of living adjustment (COLA) riders can strengthen your disability insurance policy, they result in additional out-of-pocket costs and may not always be necessary. A COLA rider, for example, can adjust your benefits in case of inflation, but may only make a difference for young individuals looking to maximize their benefits.
- Choose lower benefit levels if your financial situation allows: While replacing 60% of your income is common, it might not be the right choice for you. For example, if you have a high-earning spouse, low monthly expenses, or are nearing retirement, replacing such a large portion of your income may be unnecessary and not worth the added monthly cost.
Finding the Best Disability Insurance
As discussed above, disability insurance is designed to protect what is arguably your greatest financial assetâ€”your income potential. And despite the high prevalence of disabilities in the U.S., most Americans are not adequately covered in this area. One of the reasons for this is that people wrongly assume that whatever coverage they receive through their employer is adequate. While group disability coverage through work is an excellent starting point that employees should take advantage of, most people would benefit from additional coverage in the form of a private, individual policy. In the sections below, weâ€™ll detail what to look for when choosing an individual policy and how to pick the best company to purchase your policy from.
Policy Options & Benefit Limits
Coverage options and benefits are the key details youâ€™ll want to pay attention to when comparing policies. First and foremost, look for the carrierâ€™s definition of what constitutes an eligible disability. Most importantly, this includes own vs. any occupation coverage, mental illness coverage, partial disability coverage, and pregnancy coverage to name a few. Which of these options is important to you will be highly dependent on your occupation and personal risks.
Next, youâ€™ll want to make sure the insurer offers benefit limits and benefit periods that fit your needs. For most individuals, finding an insurance company that will adequately cover their income shouldnâ€™t be a problem; however, for certain high-earners, finding sufficient coverage in the form of a high-limit disability policy can be challenging. Also, while some insurance companyâ€™s have long-term policies that cap out at five or 10 years, others will offer policies that remain in effect until retirement.
Outside of qualifying disabilities and benefit limits, youâ€™ll want to make sure the policy has riders suited to your needs. Common riders, also known as endorsements, include cost of living adjustments, student loan protection, and retirement protection.
Looking into a companyâ€™s reputation can help you narrow down your choice of insurers. Dedicated to analyzing companiesâ€™ customer ratings, complaint histories, and business practices, the Better Business Bureau (BBB) is a source you can use to look into an insurerâ€™s reputation before committing to a policy. Additionally, the National Association of Insurance Commissioners, or NAIC, is an organization that provides useful information on insurance companies. Most notably, its consumer complaint index compares insurers based on the number of complaints they receive relative to their market share.
Financial strength ratings and histories are other important details to consider. When we talk about an insurance companyâ€™s financial strength, we are referring to the likelihood that the company will be able to cover any claims filed by its policyholders. Credit rating agencies like AM Best, Standard & Poorâ€™s, and Moodyâ€™s evaluate insurance companiesâ€™ finances and assign ratings based on risk levels. All of the companies included in this guide are highly-rated, reliable insurers that consumers can feel confident in.
The cost of the policy should be the last factor to consider after youâ€™ve narrowed down your options using the criteria above and found a few policies that fit your needs. Unfortunately, disability insurance is not cheap, but the financial protection it provides cannot be overstated. Itâ€™s best to think of disability insurance as a small tax (1%â€“3% of your income) that provides a safety net for you and your family in worst case scenarios. The best way to compare premiums is to get quotes from multiple insurers, either directly from the insurance company, through its agents, or using disability insurance brokers.
The Best Disability Insurance Companies Overall
After considering all of the factors mentioned aboveâ€”including coverage, benefit limits, company reputation, financial strength, and costâ€”we found the best disability insurance companies to consider. Continue reading for in-depth reviews.
Breeze (Best Individual Long-Term Disability Insurance)
Established in 2019, Breeze is a small company with a growing reach. Known as the first â€œonline multi-carrier disability insurance solution,â€ the company prioritizes a strong online presence, catering to customers looking for an easy-to-navigate experience and streamlined access to their policy. From signing up for coverage to managing claims, Breeze has brought all aspects of disability insurance online.
- Industry-leading online experience for obtaining quotes, reporting claims, and managing policies
- The waiting period for benefits may be as low as 30 days, much shorter than that of other long-term disability insurance providers
- Instant approvals for certain applicants
- Breeze was founded in 2019, making it an extremely young company with less experience than incumbents
- Certain plans are not available in every state
After reviewing Breezeâ€™s disability insurance products, interested customers can get a quote online, a process that takes minutes, and one that not many other insurers offer. Once customers select a policy and enroll online, the policy remains easily accessible through the online portal, meaning changes can be made as needed. Applying for a disability policy takes no more than 10 minutes, while coverage approval can (in many cases) be instant. This means less guesswork, concrete answers, and more transparency when it comes to securing coverage.
When it comes to individual long-term disability insurance, the company offers a waiting period of as little as 30 days before benefits begin. Long-term policies often require waiting periods of 3â€“6 months, making Breezeâ€™s option much shorter than some of its competitorsâ€™. This can be desirable for those with less savings who need payments to begin as quickly as possible. Along with a myriad of disability insurance-related resources, the company also provides an online tool that provides information on disability insurance based on occupation. Architects, construction workers, and teachers are just some of the professionals that will find recommendations on the Breeze website. Occupation-specific insurance information can help customers avoid purchasing too much or too little insurance, and can help them understand how a disability might affect their individual career path.
While Breezeâ€™s policies might check all the boxes, keep in mind that they are not available in all 50 states. The companyâ€™s short-term disability insurance is not available in California or New York, while its long-term insurance is not available in New Hampshire or New York. Itâ€™s also important to note that Breeze is still a very young company compared to many of its competitors, some of which have a century or more of experience in the industry. This makes the companyâ€™s future less certain; however, its policies are underwritten by Assurity Life Insurance, which has an excellent rating from AM Best.
While Breezeâ€™s policies are unavailable in certain states, the company strives to make accessibility a priority. By offering all plan services via its online portal, individual customers can apply for coverage, customize policies, and address insurance needs anytime without the added step of contacting an agent. Additionally, the companyâ€™s long-term insurance policies offer a waiting period of as little as one month, setting them apart from many competing products. For all these reasons, we recommend Breeze as having the Best Individual Long-Term Disability Insurance.
Unum (Best Group Disability Insurance Policies)
Covering nearly 185,000 businesses across the United States and the United Kingdom, Unum is known for its disability and life insurance policies. One in three Fortune 500 companies choose Unum as their employee benefit carrier, making this insurer a household name across the industry.
- Portable plans that can remain in effect after switching jobs
- A number of additional employee benefit resources and employee assistance programs
- Emphasis on behavioral health resources for employers
- Individual insurance plans are geared towards high-earners
- Lower short-term disability insurance plan limits than other companies
As the insurance carrier most often chosen by Fortune 500 companies, Unum offers a variety of employee benefits, with categories covering everything from disabilities to critical illnesses and accidents. With a focus on policies fit for employers and company plan administrators, the company offers both short- and long-term group disability insurance plans. These are designed for employers seeking group disability plans to offer their workforce. Short-term plan benefit periods can generally last between nine and 52 weeks, while long-term benefits can last until retirement age, a standard across the countryâ€™s top insurers. When it comes to benefit limits, Unumâ€™s short- and long-term policies both cover up to 60% of the insuredâ€™s monthly earnings.
While many group disability plans offered by employers cease to provide coverage if an employee leaves or is dismissed from their job, Unumâ€™s long-term plans are portable in most cases. The companyâ€™s short-term plans can be portable, depending on the specific details of the policy, meaning employer-provided coverage can last even after an individual stops working for that employer. This is one of Unumâ€™s unique plan features that sets the companyâ€™s disability insurance apart from that of many competitors.
In addition to disability insurance, Unum provides employers and employees with a wide range of additional employee benefit services. These include employee assistance programs, life planning resources, emergency travel assistance, and other health and well-being resources.
On the individual side, Unumâ€™s disability insurance options are generally catered to high-earners. The company advertises its individual disability policies as geared towards those earning higher salaries, bonuses, or commissions, and Unumâ€™s website specifically names â€œexecutives and professionals with high salaries or uninsured earningsâ€ as those who are deemed eligible for its individual plans. This points to the companyâ€™s individual disability insurance as designed to supplement existing policies when a standard benefit limit doesnâ€™t cut it.
If you do not earn an executive-level salary and are looking for the most affordable individual disability insurance policy, Unumâ€™s offerings probably arenâ€™t right for you. However, if youâ€™re an employer looking to provide your workforce with strong short- or long-term disability insurance alongside a broad suite of employee benefit options, Unum is an excellent choice. For these reasons, we recommend Unum as offering the Best Group Disability Insurance Policies.
The Hartford (Runner-Up Best Group Disability Insurance)
With over two centuries of experience in the insurance industry, The Hartford Insurance Group is a reliable choice for both traditional business insurance and disability policies. Focusing on employer-provided disability insurance, the company works with business owners to select the best plan for their employees and their budgets.
- Excellent support services for employees with disability policies
- Offers the customizable DisabilityFLEX plan as an alternative to short-term disability insurance
- High ratings from top credit agencies and low complaint index from the NAIC
- Does not offer individual disability insurance
The company offers businesses both short- and long-term disability options, along with a third alternative known as DisabilityFLEX. Short-term benefits can cover up to 70% of lost income, can last up to 52 weeks, and can begin at various points throughout the claims process, including the initial injury date. Claims are managed by trained nursing professionals who can provide guidance on the medical aspect of your claim while guiding you through the filing process.
The Hartfordâ€™s long-term disability insurance policies, on the other hand, can cover up to 67% of lost income. The maximum benefit amount totals $10,000 a month, and benefits can last from two to five years or until retirement age. Waiting periods can be anywhere from three to six months, and the policy begins on an own occupation basis, switching to any occupation after two years. The Hartford may also offer premium waivers to eligible clients with long-term disability policies from the company.
Family care credits are another benefit of the companyâ€™s long-term disability offerings. Paid out alongside the monthly insurance benefit, these credits total $350 per dependent for the first 12 months of the policy, and decrease to $175 per month after that (with an overall limit of $2,500 a year). The maximum benefit period for family care credits is 24 months, offering much-needed financial support to anyone who suffers a disability but still needs to provide for their family.
Designed for temporary absences from work, the Hartfordâ€™s additional DisabilityFLEX insurance is an alternative option that can be seamlessly paired with existing plans. Prioritizing employee control over their own insurance plans, DisabilityFLEX works similarly to short-term disability insurance in that it covers a portion of lost income in case of unexpected illness or injury. The main difference is that DisabilityFLEX provides a flat weekly benefit as opposed to a percentage of pre-disability income. This flat benefit can fall anywhere between $100 and $2,000 and is paid directly to the employee.
Plan participants can also customize crucial details of their plans, including when the benefit period begins, the duration of the benefit period, and the size of the benefit based on their budget. By being able to select their own benefit limit instead of relying on a predetermined percentage, employees have more control over their monthly premiums.
The Hartfordâ€™s ratings from top credit agencies indicate the companyâ€™s strong financial position. With an A+ rating from A.M. Best, an A+ from Standard & Poorâ€™s, and an A1 from Moodyâ€™s, The Hartford ranks among the best insurance companies in the U.S. Additionally, the companyâ€™s consumer complaint index, as reported by the NAIC, remains low.
When it comes to disability insurance, The Hartfordâ€™s most significant drawback is that it only offers group plans, and not individual policies. However, the companyâ€™s flexible library of insurance policies designed for employers nearly fills in the gap. Other than its standard short and long-term plans, the companyâ€™s inclusion of DisabilityFLEX as an option continues to put employees first by allowing them more control over their own plans and keeping budget needs in mind.
Mutual of Omaha (Best Individual Short-Term Disability Insurance)
In operation for over a century, Mutual of Omaha is a Fortune 500 insurer offering life and disability insurance on an individual level. Known as Mutual Income Solutions policies, the companyâ€™s disability plans are customizable and offer a number of benefits to keep your income covered in case you are unable to work because of illness or injury.
- Policies include a number of additional benefits like premium waivers
- Clients have the option of adding Automatic Increase and Future Insurability benefits at no charge
- The company offers various discounts to decrease premium costs
- Online experience for obtaining quotes and policy management lags behind competitors
Mutual of Omahaâ€™s Mutual Income Solutions disability policies include a selection of benefits that go beyond a standard monthly payout. The companyâ€™s survivor benefit, for example, offers one beneficiary a payment totaling three times your monthly benefit if you were to pass away. The recurrent disability benefit waives your waiting period if you happen to experience another disability within 30 days or if the initial disability returns in a six month period. Other automatic additions include presumptive total disability, transplant donor benefits, and rehabilitation benefits.
While they are not initially included in your policy, an Automatic Increase Benefit and a Future Insurability Option are available at no charge if you choose to add them to your plan. The Automatic Increase Benefit can increase your monthly benefit by 4% every year, which can make a significant difference in a policy lasting multiple years. The Future Insurability Option, on the other hand, raises the monthly benefit every three years after you initially purchase your policy. Other optional additions like Residual Disability, Cash Value Benefits and Cost of Living Adjustment can be reviewed on Mutual of Omahaâ€™s website and tacked on to your plan for a fee.
Mutual of Omahaâ€™s discounts are worth keeping in mind when considering the companyâ€™s disability insurance plan. Options include a 15% discount for those who have been self-employed for at least two years, and a 10% discount for two-person households where both people are participating in Mutual Income Solutions.
While Mutual of Omahaâ€™s short-term, long-term, and group disability insurance options are all excellent policies, the companyâ€™s website may feel lacking for those looking for a more modern online experience. Sample premiums for various occupations are available via a limited online tool, but getting a concrete quote requires contacting an agent. The same goes for customizing and purchasing a policy, meaning you will have to communicate with an agent throughout the entire process.
Overall, Mutual of Omaha is a solid choice for a disability policy. If you are not expecting a fully online experience and donâ€™t mind connecting with an agent, youâ€™ll find the process of purchasing the companyâ€™s insurance detailed and involved. The companyâ€™s various benefit and rider options, coupled with a superior A+ rating from AM Best, makes it our choice for offering the Best Individual Short-Term Disability Insurance.
MassMutual (Best Disability Insurance for Medical Professionals & High-Risk Occupations)
A mutual insurance company boasting over 170 of experience in the field, MassMutual is a highly regarded disability insurance carrier. The companyâ€™s disability insurance options offer custom coverage and professional guidance to help you settle on the plan that fits your income and occupation.
- One of the only companies to offer true own occupation coverage
- Highly customizable policies, coupled with individual guidance and support
- Strong financial performance and reputation
- Limited online resources on disability insurance products
When it comes to finding and purchasing a disability insurance plan, MassMutual prefers to connect you with a financial professional rather than present you with myriad options all at once. You can contact an agent through the companyâ€™s website but before you do that, you can use the companyâ€™s quick insurance calculator to estimate how much insurance you actually need. This income and expense-based estimate can nudge you in the right direction before contacting a professional.
After getting in touch with a professional through the companyâ€™s website, you can expect an initial phone meeting where your advisor will get to know who you are and what kind of coverage you hope to secure. Your financial status will help the advisor recommend products based on risk assessment, after which you can select a package and purchase it. Over the course of your benefit period, your advisor will stay by your side, checking in regularly to make sure the plan you chose is still working for you. This can be especially helpful if your circumstances and needs change while youâ€™re still under your original policy.
While the one-on-one experience you get from connecting with a professional can be important, some customers may find MassMutualâ€™s website and online resources quite limiting. The company heavily relies on advising agents to provide information on products and guide customers through the entire process, from reviewing plan options to actually purchasing them. This may make it somewhat difficult to understand all of MassMutualâ€™s disability insurance offerings before committing to a meeting with an agent. However, the individual experience may be extremely helpful to those in high-risk or non-traditional occupations; working directly with an agent can better help identify the insurance options that would work best for unorthodox or especially risky work environments. Additionally, MassMutual is one of only a few disability insurance companies that offers true own occupation coverage, meaning its policies provide full benefits even if you could theoretically work in a different job from the one you held prior to the disabling event. This is something that is especially important for medical professionals like surgeons, doctors, and dentists.
While MassMutualâ€™s approach to securing an insurance policy may not be best for those who prefer to carry out the entire process online, the companyâ€™s focus on white-glove service and broad coverage make it our pick as having the Best Disability Insurance for Medical Professionals & High-Risk Occupations. A superior rating from AM Best and very strong scores from both Standard & Poorâ€™s and Fitch reiterates MassMutualâ€™s reputation in the industry and financial stability.
Northwestern Mutual (Runner-Up)
With excellent financial ratings and a prominent reputation within the insurance industry, Northwestern Mutual is important to consider when comparing disability insurance. Ranking as one of the worldâ€™s â€œMost Admiredâ€ companies in Fortune Magazine, the company has enjoyed financial stability while remaining one of the best known life and disability insurers in the world.
- Offers disability insurance plans designed specifically for medical professionals
- Exceptionally strong financial reputation
- Limited online policy information; Northwestern Mutualâ€™s website matches you with a financial advisor before you can get a quote and secure a policy
While Northwestern Mutual offers short- and long-term disability insurance policies for individuals, it also hones in on the needs of doctors and dentists, offering plans designed to seamlessly fit those careers. Emphasizing the demanding nature of medicine, the plans designed for doctors and dentists offer flexibility, which can be a luxury when it comes to many standard insurance policies. Northwestern Mutual offers doctors and dentists the options of partial benefits, full benefits, and continued disability coverage during career changes. Despite this flexibility, its lack of true own occupation coverage could make Northwestern Mutual less desirable than certain competitors like MassMutual.
For interested customers, the companyâ€™s easy-to-use online calculator can estimate just how much coverage would be right for your income, helping you hone in on the correct policy. With decades of experience comes decades of cultivating a reputation, and Northwestern Mutualâ€™s ratings speak for themselves. A superior A++ rating from AM Best and recognition from Fortune Magazine as a highly admirable company highlight Northwestern Mutualâ€™s strengths and reliability.
Despite its highly valued reputation, Northwestern Mutual falls slightly short in terms of its online offerings. While the online calculator is highly useful in determining how much insurance one needs, only limited information on policy options is provided. For more details, potential customers have to connect with a Northwestern Mutual financial advisor, a process that takes a few minutes and can be done online. The advisor then works with you to go over plan options and secure coverage. While one-on-one guidance is undeniably helpful, it adds an extra step to learning more about coverage options.
Northwestern Mutualâ€™s stable reputation, successful financial history, online income-based tools, and specialization in disability coverage makes the company a strong choice for anyone needing coverage.
Frequently Asked Questions
The two main types of disability insurance are short-term disability insurance and long-term disability insurance. Short-term disability insurance is designed to cover short periods of time away from workâ€”usually one year or less. These policies also have shorter waiting periods, meaning coverage begins quickly after the disability occurs. Long-term disability insurance is designed to cover longer periods of time away from work, with some policies providing coverage up to retirement age. However, unlike short-term policies, long-term policies have much longer waiting periods before coverage begins.
In addition to private short-term and long-term disability insurance, there are also government funded disability programs offered at the federal and state level. At the federal level, there is Social Security Disability Insurance, which is funded through payroll taxes and provides limited benefits to those in need. In addition, certain states have state-funded programs that are administered differently depending on the state.
While disability insurance can be beneficial for a wide range of workers, there are two groups of people for which coverage is especially important. The first group is individuals working in physically-demanding jobs. These include both traditional manual labor occupations, but also occupations that rely heavily on mobility or the use of specific body parts. Examples include musicians, athletes, surgeons, artists, childcare workers, and teachers among others. The second group is individuals who are the sole or primary breadwinner for a family, especially those with children.
The Social Security Administration defines disability as â€œthe inability to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment(s) which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.â€
However, private insurers all have different definitions of what constitutes a disability and what conditions qualify for full or partial benefits. These definitions will also differ by policy and coverage options selected. For example, a policy with own occupation coverage is designed to cover any disability that makes an individual unable to perform the exact job they were doing prior to the disability. On the other hand, a policy with any occupation coverage is designed to only provide full coverage if the individual is unable to perform any occupation that is relevant to them based on their skills.
Determining whether or not disability insurance is worth it depends on a number of factors unique to your personal financial situation. However, there are a few general pieces of advice that will work for a majority of people.
If your employer offers group disability insurance for free or at a highly subsidized rate, it is worth participating in the group plan. Similarly, if you live in any of the states that offer state-sponsored disability programs, these are also worth taking advantage of.
When it comes to individual policies, short-term disability insurance is usually not worth the expense. This is because the cost is similar to long-term disability insurance, but the benefits only last up to a year. Most people are better off putting the money towards their own emergency fund to cover short periods of time that they could be out of work for any reason (not just a disability).
Individual long-term disability insurance, on the other hand, is a smart financial choice if you can afford it. Long-term policies cost between 1% and 3% of annual income, and can provide coverage up to retirement age. Long-term disability insurance provides financial protection for you and your dependents in the event of a disability causing an extended (or permanent) period of time away from work. Such periods of time would be nearly impossible to cover through savings alone.
Before canceling a disability insurance policy, the policyholder should be sure that they have enough savings to cover their monthly expenses in case they become disabled and can no longer work. This usually occurs near retirement age when individuals see a reduction in expenses as a result of no longer having a mortgage payment, student loans, or child-related costs. Further, by this time, many people will have saved a significant amount of retirement and non-retirement savings.
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