What is Disability Insurance?

Disability insurance replaces part of your income if you cannot work due to sickness or injury. It is a form of financial protection for your most valuable livelihood.

This article will take a detailed look at disability insurance and how it works.

What is Disability Insurance

Disability insurance protects your income, often called disability income insurance or income protection insurance.

It is a financial safety net in case you get too sick or hurt to work anymore. Disability insurance provides you and your loved ones with the financial security needed in case you cannot work. The benefits of disability insurance can be used however you want.

For instance, you can use disability insurance benefits to pay your monthly bills and out-of-pocket expenses for necessities like groceries and childcare.

How Does Disability Insurance Work

Disability insurance is a contract between you and the insurance company. You pay monthly premiums in exchange for a promise that the insurer will provide a monthly benefit if you’re unable to work due to a qualifying disability.

Disability insurance replaces a portion of the income you lose due to being unable to work any longer. With disability insurance, you can easily meet your financial needs, such as covering household expenses, paying bills, providing for the family, and handling medical expenses.

A disability insurance policy will usually detail the following fundamental elements of coverage:

Monthly premium amount – Similar to other insurance policies, this is the payment you must make every month to keep your coverage active.

Definition of disability – Insurance policies define disability in various ways, often focusing on your inability to perform your job or any job, considering your training, education, and experience. Some policies may offer partial benefits if you can still work but earn less.

Amount of benefits – Disability insurance typically replaces a portion of your income, often 60% to 80% of your pre-disability earnings, subject to a policy’s maximum benefit limit.

Duration of disability benefits – The disability insurance policy differs for different circumstances. It may offer coverage for a few months to a few years and even up to a certain age.

Now that you know the basics of disability insurance, let’s examine the different types of disabilities covered under it.

What Does Disability Insurance Cover

What Is Disability Insurance

What is Disability Insurance – What Does Disability Insurance Cover

Disability insurance offers coverage in case of illnesses or injuries that restrict your ability to work at a conventional job. Despite having such a simple definition, many people still have misconceptions about what is classified as a disability and what isn’t.

Usually, when we hear the word “disability,” we automatically imagine someone who has suffered a freak accident or a rare birth defect. However, the majority of causes of disabilities are more common.

For instance, back pain, arthritis, cancer, diabetes, depression, stroke and heart disease make up around 90% of all claims filed for disability insurance, as opposed to only 10% for physical injuries.

Still, injuries such as fractures, strains of muscles, and sprains of ligaments are also classified under disability. This proves that the scope of disabilities that can prevent someone from earning a normal livelihood due to a disability is a lot broader than most believe.

What Are the Types of Disability Insurance

Though there is a multitude of types of disability insurance policies that exist, we’ve narrowed down the list to the top 4 types of disability insurance you can buy:

1 – Long Term Disability Insurance

Long-term disability insurance provides income protection to those affected by disabilities for an extensive period. It offers to cover monthly payments to people who suffer from the effects of serious injuries and illnesses.

This is for the injury or illness that prevents the person from working at a meaningful job for several months or years, even permanently.

The benefits of long-term disability insurance typically continue until you recover, reach a specified age, often 65 or 70, or the end of a predetermined benefit period, which can vary from a few years to up until retirement age, depending on the policy.

Long-term disability insurance can be bought through a group plan or an individual insurance policy. Though a long-term insurance policy is slightly more expensive than short-term disability insurance, the former offers more extensive benefits.

Under long-term disability, you can get coverage for around 60% to 80% of your income. You can even buy long-term disability insurance policies that replace your entire income, which you lose when you are forced to work a lower-paying job due to an illness or injury.

2 – Short Term Disability Insurance

Short-term disability insurance is meant for those suffering a temporary disability due to illness or injury. Disability insurance is normally provided through an employer group insurance plan.

While individual short-term disability insurance policies are available, financial experts often suggest weighing the cost against the benefits, as employer-provided coverage or an emergency fund may offer more cost-effective protection. The reason behind this is that the cost of premiums in this circumstance may only sometimes be worth the amount you receive as benefits.

If you cannot secure short-term disability coverage from your employer, then you can establish an emergency fund.

Short-term disability insurance usually pays around 40% to 60% of your pre-disability income; its benefits last 3 to 6 months. However, some policies can provide benefits for up to 2 years. The benefits of short-term disability insurance begin 14 days from the date of the disability.

3 – Social Security Disability Insurance (SSDI)

Social security disability insurance (SSDI) is a government-backed initiative administered by the Social Security Administration. Like the other types of disability insurance policies, SSDI benefits are applicable if a disability prevents you from holding a meaningful job.

However, it is most difficult to qualify for SSDI benefits, as the eligibility criteria include the following:

  • Having worked in jobs covered by Social Security
  • Having worked long enough and recently under Social Security
  • Having a medical condition that meets Social Security’s definition of disability
  • Inability to work for a year or more because of a disability

Generally, a person is not eligible for SSDI benefits if they work and earn over $1,220 monthly. However, if you are unemployed, Social Security will consider if you can work and earn a livelihood.

If you are found to be able to work at any kind of gainful job, you will not be considered eligible to receive SSDI benefits. When making this decision, the Social Security Administration will consider your medical condition, past work experience, education, age, and transferable skills.

4 – State Disability Insurance

Certain states, including California, New Jersey, Hawaii, Rhode Island, and New York, require employers to provide short-term disability benefits, known as state disability insurance, for non-work-related illnesses or injuries. These states dictate that employers offer disability insurance coverage to employees for illnesses and injuries outside the workplace.

However, like SSDI, state disability insurance has several drawbacks that make it not feasible for most disabled persons.


If you rely on your source of income, you are more likely to need disability insurance coverage, especially if you have multiple dependents. Disability insurance is considered a smart investment for those who seek a secure financial future.

See Also

Signs That You Will Be Approved for Disability

Free Financial Help for Individuals With Disabilities

Grants for Parents With Disabled Child

Grants for African American Women

What is Short Term Disability

How to Get a New Medicaid Card

Disability Insurance for Physicians

What is Considered Disability

Current Version
November 15, 2022
Written By
Shubham Grover

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