Being prepared for an injury or illness is essential, as a permanent or short-term disability can lead to a significant loss of income. To ensure your livelihood, you could obtain disability insurance. Using the calculator on this page, you can find out how much insurance you may need if an injury, illness, or disability keeps you from working. With just a few simple details regarding your situation, you can also see how much would be covered by a certain policy. If you continue reading, you can learn about the nuances of obtaining the right coverage for your situation.
Want this nice calculator on your page? Just copy the code from a box below
Want to design your own calculator?
to gain access.
Who should get disability insurance?
When something is valuable to you, it is natural to want to protect it. If you own a home, it is probably ensured against harm such as fire, flood, or natural disaster. If you drive a vehicle, you have auto insurance to cover you in case of an accident. You could also have life and health insurance to safeguard your family and help with medical expenses.
Your ability to make an income is one of your most valuable assets. Yet, not as many people
ensure their paychecks
in case of illness or injury. It is the reason you have a roof over your head and food on the table. It helps you to afford everything that is important to you. That includes your
, and quality of life.
Most people think that Social Security disability will help them if needed, so they skip buying disability insurance. The truth is social security disability may not help much, if at all. The program only provides a small benefit (just over $1,000/month) and makes it very difficult to qualify.
Statistics show that about 25% of workers will become disabled before retiring. The majority of illnesses and injuries are due to musculoskeletal disorders and cancer.
What are the different types of disability coverage?
If you are looking into disability insurance, you have a couple of choices. You should check out what is available through your work and compare that with individual quotes.
: your employer may have a group plan available. They could offer different levels of coverage, so it’s important to read the fine print. Tier 1 is the most affordable option but will have limited benefits. This plan usually replaces 60% of your pay, though it is necessary to know if that is
before or after tax
. There is often a cap on how much you can claim each year, plus restrictions on the timeframe to receive benefits. Most low-tier group policies will pay out for two years of disability.
: if you already have some coverage from work, you can always add more to your plan. An extra layer of protection can help pay for expenses that may not be covered. For a small fee, you can increase your paycheck replacement to 80% or broaden your timeframe to receive benefits.
: if you don’t like what your employer offers you could get a personalized plan. Prices will be higher then what’s proposed at the office because the benefits will be tailored to you. You’ll get a better quote if you’re young and healthy versus someone that is older with a heart condition. Personalized plans provide much better benefits then group disability. You could decide how much income replacement to get, plus coverage for lost bonuses. Some plans even allow you to change jobs without disrupting your disability benefits.
Within the options set out, you could get insurance that is either short-term or long-term. Short-term benefits usually expire within three to six months, while the alternative can span many years. Some long-term policies will even provide benefits until you can work again.
Having a plan can provide a safety net
if you have a medical emergency
that prevents you from working. Even though the government may be able to provide some assistance, it’s better to have some coverage versus none.
How to find the best coverage for your situation
Like any other financial product, your unique needs will dictate what type of insurance policy is best. It’s important to do your research before accepting any offers. It can be helpful to work with an insurance broker or go through a company like
When looking into insurance plans, there various considerations to make.
You should only consider providers that have an
in financial stability and credit quality. A.M. Best is a benchmark resource that provides ratings on over 3,000 insurance companies, spanning across 90 countries.
Different companies will cater towards certain professions and occupations. Whether you are a business owner, accountant, or skilled worker, be sure that your policy covers your skill.
There are also different plans for individuals that are highly compensated (making over $200k a year). It’s called high-limit disability insurance. This type of coverage extends to physicians, surgeons, entertainers, and some business owners.
When looking at policies, the first thing to check is the amount income substitution. You should aim for at least 60% paycheck replacement before tax, as that will be similar to what you are taking home now.
It’s also important to pay attention to the length of coverage, whether short-term or long-term. The best plans provide benefits within 3 to 6 months of being disabled and continue to your age of retirement.
Even if you get a quote that you are happy with, you should get multiple offers before making a decision. You may benefit from a broker or consultant reviewing the policy terms with you, as this can ensure that you sign up for a plan that’s in your best interest.
Is disability insurance taxable?
In some instances disability insurance is taxable – it simply depends on how you get your disability income. Benefits from social security or workers compensation usually don’t require taxation. If you paid for your private or group plan with after-tax dollars, it’s shouldn’t be taxed either. However, if your premiums are bought with pre-tax dollars, the income becomes taxable.
How to use the disability insurance calculator
The calculator is very easy to use. It can help you see the value of your insurance policy benefits in case of a disability. You could use this as a tool to assess the quotes you get from different providers. You just have to add a few details about your coverage and disability needs. Let’s review this together.
: On the first line of the calculator, please specify your current monthly expenses. Be sure to include any mortgage or rent payments, utility costs, phone and cable bills. Don’t forget about food, and leisure expenses too. You can use your keyboard or the arrow features to make this input easier.
: On the second line, estimate your month disability expenses. This amount should be a bit less than your current monthly obligations. Keep in mind most of your payments, such as mortgage and utilities, won’t change. However,
you could reduce spending
and cut transportation costs.
: Include the amount of monthly disability coverage you have to the third line. Coverage could be from social security disability, private or group sponsored benefits.
: Next, add the length of time, in months, that you foresee your disability keeping you from work. The Council on Disability Awareness says that the average disability absence is around 34 months.
: On the fifth line, add the length of time you have disability coverage for on your plan.
: Lastly, specify an annual rate of inflation.
How to interpret your results
Once added to the system, you can view a chart and graph of your results. There are two tabs beneath the inputs called “Disability Insurance” and “Monthly expenses”.
: The first tab is a line graph comparing your monthly expenses and current insurance. Here you can view your needs in blue versus your insurance benefits in green. Sometimes, your needs may outweigh your coverage. More detailed information can be found in the next tab.
: The next tab is a table summarizing your disability expenses. Here you can clearly view if there is a difference between your monthly costs and insurance benefit. The discrepancy can be seen in the last column. If the difference is a negative number, that means your policy will not fully meet your disability needs. It’s important to scroll to the bottom of the table to see if your benefits last until you return to work.
Your results can help you decide which policy would best meet your circumstances. In some instances, it may be better to get benefits that pay out less but allow for more extended claims.
If you are currently facing a disability, using this tool can help you prepare for your obligations. You can see how much of your savings you may need to use and budget yourself accordingly.