How Many Years of Disability Insurance Do I Need?


Statistically, about one out of every four workers will become disabled at some time during their lives. That makes a strong case for having disability insurance of some sort, whether it is provided by an employer, or through a private plan that you purchase directly from an insurance company.

There are a number of considerations when you are purchasing disability insurance, and one of them is the number of years of disability insurance that you need. There are different options, and you will have to carefully consider which is best for you.

Long-term Disability vs. Short-term Disability

Time wise, there are two types of disability, long-term disability and short-term disability.

Short-term disability, as the name implies, runs for a limited amount of time. They’re typically available in terms of either two years or five years. That is to say that they will end within specified time, whether you are able to return to work or not.

Long-term disability generally covers up to age 65, when you will be eligible for Social Security retirement benefits. It’s also important to understand how the policy defines disability. In some policies, it will be interpreted as your inability to perform your current job. In other policies, your ability to receive benefits will be based on your complete inability to perform any job at all. Obviously, this is the more restrictive definition of disability.

Both policies will replace approximately 60% of your income, up to a maximum of $50,000 per year. Ironically however, short-term disability is typically more expensive than long-term – as much as twice the premium.

I cover long-term disability vs. short-term disability in a separate post.

You Basically Have Only Three Options When it Comes to Term Length

Based on what we’ve covered above, there are three options as to the term of a typical disability policy – two years, five years and to age 65 (permanent disability).

On the surface, a disability policy running to age 65 would seem to be the best choice. In the event that you become permanently disabled, it will provide you with an income right up to the point where you will qualify for Social Security retirement income. But depending on what it is that you do to earn a living, coverage of that length may be unnecessary. We’ll take a look at some of those situations in the next section.

Since most disability situations are temporary in nature, a two-year term will be sufficient in most cases. Five years may seem like extra insurance – just in case – but it’s entirely likely that a disability lasting for five years is more likely to become permanent.

A policy with a two-year term may be the optimal term, considering that if a disability turns out to be permanent, you may be eligible to apply for Social Security Disability Income (SSDI) when it becomes apparent that you will no longer be able to work. In that way, you will have your two-year policy to cover those disabling events that are not permanent in nature, and Social Security in the event that they prove to be permanent.

Factors to Consider in Choosing the Length of Your Coverage

The state of your health, your ability to earn a living, and your personal obligations should all figure significantly in deciding how many years of disability insurance you need.

Here are some important considerations:

How is your health in general? We normally think of disability as being caused by accidents, such as a fall, a car crash, or being injured on the job. But disability can just as easily be caused by a major illness, such as heart attack, stroke, cancer, or some type of organ failure or bone degeneration. If your health is good overall, a major illness may be less likely than an accident. That may lower the likelihood that you’ll ever need to file a disability claim, which can enable you to take a short-term policy.

What kind of work do you do? Full disability is a bigger factor if you do work that requires sustained physical activity. This can include auto mechanics, plumbers, carpenters, movers, and landscapers. A major disabling event could be the end of your ability to earn a living. A permanent disability policy would work better for you in this situation.

However, certain occupations that don’t involve strenuous activity, could mean that you can continue to earn a living even though you’re physically disabled. A short-term disability policy may be all that you need. It could be enough to provide you with a valuable period of adjustment enabling you to return to your current career, even with a disability.

What are your capabilities beyond your current occupation? A major disabling event might mean the end of your current occupation. But if you have secondary skills, that might enable you to continue earning a living in a different capacity, a short-term policy may work well for you.

For example, let’s say that you have been a truck driver for many years, but the potential exists for you to move into a stationary management position. The disability might keep you from driving a truck, but it wouldn’t end your ability to earn a living. A short-term disability policy may be all you need. If no such secondary options are available to you, a permanent disability policy will be the recommended choice.

Your family situation. If you have one or more dependents, who rely on your income for more than a few years, a permanent disability policy will certainly be the better choice. On the other hand, if you have no dependents, or if you expect to be an “empty nester” in the near future, a temporary policy of two years or five years may get the job done for you.

As you can see, determining how many years of disability insurance you need isn’t just in the numbers. You have to consider the complete picture of your ability to living, as well as your obligations.

Various disability insurance terms can work for you, but what’s most important is that you have a disability insurance policy in place. In the event you become disabled, that policy will give you survival options that you will never have without it.

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