About 1 in 4 of today's 20-year-olds will become disabled before reaching retirement age, according to the Social Security Administration. Yet most working professionals carry life insurance worth 10 times their income and zero private disability coverage. That is backwards. Disability is more likely than death, and the financial impact lasts decades, not weeks.
Short-term vs. long-term disability
Short-term disability (STD) replaces 60 to 70 percent of income for 3 to 6 months after a 7 to 14 day waiting period. Long-term disability (LTD) replaces 50 to 70 percent of income after a 90 to 180 day elimination period and pays until age 65 or 67. STD is often through your employer; LTD is the policy worth owning privately.
Own-occupation vs. any-occupation: pick own-occupation
Own-occupation pays benefits if you cannot perform the duties of your specific profession (a surgeon who can no longer operate but could teach is still considered disabled). Any-occupation pays only if you cannot perform any job you are reasonably suited for. For specialized professionals, own-occupation is non-negotiable.
Why employer LTD is rarely enough
Group LTD typically pays 60 percent of base salary, capped at $5,000 to $15,000 per month. Bonuses and commissions are usually excluded. Benefits are taxable when the employer pays the premium, dropping take-home replacement to roughly 40 percent. A private supplemental policy on top of group coverage gets a high earner closer to a true 65 to 70 percent net replacement.
How much LTD coverage you actually need
Most planners aim for 60 to 70 percent of pre-disability income, after tax. For a $150,000 earner with employer group covering $7,500 per month, a private policy adding $3,000 to $4,000 per month closes the gap. Premiums typically run 1 to 3 percent of the income being insured.
Quick comparison
| Feature | Group (employer) | Private individual |
|---|---|---|
| Replacement | 60% of base salary | 60 to 70% of total comp |
| Definition | Often any-occupation after 24 mo | Own-occupation possible |
| Benefits taxable | Yes (employer paid premium) | No (you pay premium) |
| Portable | No (lost at job change) | Yes |
| Typical cost | Free or cheap | 1 to 3% of insured income |
Key takeaways
- Short-term disability (STD) replaces 60 to 70 percent of income for 3 to 6 months after a 7 to 14 day waiting period.
- Own-occupation pays benefits if you cannot perform the duties of your specific profession (a surgeon who can no longer operate but could teach is still considered disabled).
- Group LTD typically pays 60 percent of base salary, capped at $5,000 to $15,000 per month.
Final word
Insurance is at its best when you understand the product before you need it. Bookmark this guide, share it with anyone shopping for long-term disability insurance this year, and reach out via our contact page if you have a question we have not answered.
Related reading on InsureLab
Sources & further reading
Frequently asked questions
Is Social Security disability enough?+
No. SSDI is hard to qualify for, takes 6 to 24 months, and pays an average of $1,540 per month. It is a backstop, not a plan.
Are disability premiums tax deductible?+
Personal premiums are not deductible, but the benefits are tax-free. Self-employed individuals can deduct premiums if structured through certain entity types; ask your CPA.
When should I buy disability insurance?+
As soon as you have income to protect, ideally in your 20s or 30s when premiums are lowest and underwriting is easiest.
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