Disability Insurance to Protect Your Income

Every disability policy answers one question: disabled from what?

Own-occupation

You are covered if you cannot perform the duties of your occupation. A surgeon who develops a hand tremor cannot operate, so the policy pays — even if that surgeon goes on to teach or consult and earns a living doing it.

Any-occupation

You are covered only if you cannot work in any job you are reasonably suited to by education, training and experience. That same surgeon, capable of teaching, may not be considered disabled at all.

The gap between those two definitions is the entire policy. Two contracts can look identical on price and benefit amount and behave completely differently at claim time, which is the one moment that matters.

Definitions also vary in more ways than the labels suggest — some contracts are own-occupation for a limited period and then switch. The full breakdown is here.

Four settings decide what your policy costs and what it does.

Benefit amount

What the policy pays each month. Carriers cap this as a share of your income rather than letting you insure your whole paycheck — the point is to replace income, not to make being disabled more profitable than working.

Elimination period

How long you wait after becoming disabled before benefits start. It works like a deductible measured in days: the longer you can self-fund, the less the policy costs. This is the setting people tune when premium is tight, and it is worth being honest about how many months of expenses you could actually cover.

Benefit period

How long payments continue — a set number of years, or through to retirement age. A long benefit period is the expensive half of the contract and the reason to have it.

Riders

Residual or partial disability matters most: it pays when you can still work but earn less, which is what a real disability usually looks like. Cost-of-living adjustments and future-increase options are worth asking about too.

Group long-term disability through an employer is a good start and a poor finish, for three reasons that compound.

It usually replaces a percentage of base salary — often not bonus or commission, which for a lot of people is the part that pays the mortgage. It generally uses a stricter definition of disability than an individual policy. And it ends when the job does, so the one thing you do not control also controls your cover.

There is a tax wrinkle worth knowing: if your employer pays the premium, benefits are generally taxable to you. If you pay it yourself with after-tax money, benefits are generally tax-free. That changes what a given benefit amount is actually worth in your hand, and it is why a smaller individual policy can outperform a larger group one.

Most people I work with keep the group coverage and layer an individual policy on top. The comparison guide goes deeper.

Assuming the group policy has it covered

It usually covers a fraction of what people assume, on a stricter definition, and only while you hold the job.

Shopping on premium instead of definition

The cheapest contract is usually cheap because of what it does not cover. Own-occupation and residual riders cost money precisely because they are the parts that pay.

Waiting until income is high

Coverage is priced on age and health. Buying earlier locks both in, and a future-increase option lets the benefit grow with your income later without proving your health again.

Ignoring bonus and commission income

If a large share of your pay is variable, a policy sized to base salary is sized to the wrong number.

Not reading the definition change

Some contracts are own-occupation for a period and then quietly become any-occupation. That switch is the difference between a policy that pays and one that stops.