What is disability insurance?

Key Components of Disability Insurance

• Policyholder: The individual who owns the disability insurance policy and pays the premiums.


• Insured: The person whose ability to work is covered by the disability insurance policy.


• Premium: The amount paid by the policyholder, typically on a monthly or annual basis, to maintain the disability insurance coverage.


• Benefit Amount: The amount of income replacement provided by the policy, usually a percentage of the policyholder's pre-disability income.


• Benefit Period: The length of time for which the benefits are paid, which can range from a few months to until retirement age.


• Elimination Period: The waiting period between the onset of the disability and when the benefits begin. Common elimination periods range from 30 to 180 days.


• Definition of Disability: The criteria that determine whether the policyholder is considered disabled and eligible for benefits. This can vary between policies and may include terms such as "own occupation" or "any occupation."

Types of Disability Insurance

There are two main types of disability insurance: short-term disability (STD) and long-term disability (LTD).

Short-Term Disability (STD) Insurance

• Coverage Duration: Provides benefits for a short period, typically up to six months.


• Elimination Period: Usually has a shorter elimination period, often ranging from a few days to two weeks.


• Benefit Amount: Typically replaces a higher percentage of pre-disability income compared to long-term disability insurance.

Long-Term Disability (LTD) Insurance

• Coverage Duration: Provides benefits for a longer period, potentially until retirement age or for the duration of the disability.


• Elimination Period: Usually has a longer elimination period, often ranging from 90 days to 180 days.


• Benefit Amount: Typically replaces a lower percentage of pre-disability income compared to short-term disability insurance.

Benefits of Disability Insurance

• Income Replacement: Provides a source of income if you are unable to work due to a disability, helping to cover living expenses and maintain financial stability.


• Financial Security: Protects against the loss of income, ensuring that you can meet your financial obligations even if you are unable to work.


• Pays for Medical Expenses: May cover some medical expenses related to the disability, reducing the financial burden of healthcare costs.


• Peace of Mind: Offers peace of mind knowing that you have financial protection in case of a disability, allowing you to focus on recovery.

Additional Considerations

• Policy Options: Consider optional riders that can enhance your policy, such as cost-of-living adjustments (COLA), which increase benefits to keep pace with inflation, or future increase options, which allow you to increase coverage as your income grows.


• Employer-Provided vs. Individual Policies: Employer-provided disability insurance may offer basic coverage, but an individual policy can provide additional benefits and more comprehensive protection.


• Pre-Existing Conditions: Be aware of any exclusions or limitations related to pre-existing conditions when choosing a policy.