Best Disability Insurance

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Contributor, Benzinga
October 21, 2022

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No one wants to imagine themselves being severely injured. Unfortunately, disabilities are much more common than you might believe. According to the CDC, 18.7% of Americans currently live with a disability and 1 in every 4 American workers suffer a disabling injury before they reach retirement. That's why disability insurance is a good idea to protect your income.

A disabling injury can also be expensive. About 350,000 bankruptcies can be attributed to debilitating injuries each year. The average economic cost of a nonfatal injury is over $70,000, plus the cost of lost wages.

Use our guide to learn more about how you can get coverage for life’s unexpected injuries.

Best Disability Insurance:

The Best Disability Insurance

The top disability insurance companies have some combination of the features above. Let's take a closer look of our picks.

1. Breeze

Did you know that one-third of employed Americans will become disabled during their career, for at least 90 days? Don’t delay buying disability coverage.

Breeze makes your insurance purchase simple, affordable and offers excellent customer service to boot.

Here’s how to get disability insurance from Breeze in minutes: 

  1. Answer a handful of simple questions to get your personalized rate.
  2. Apply in 10 minutes from your computer or mobile device.
  3. Breeze decides quickly whether you’re eligible.
  4. Get coverage on the spot.

2. MassMutual

With over 100 years of experience in the insurance realm, MassMutual is one of the most trusted insurance providers in the United States.

Its disability options are as comprehensive as its other forms of coverage. MassMutual’s definition of a “disability” is more comprehensive than most insurance providers.

You’ll get coverage if you’re too injured to continue in your current occupation, not any job.

MassMutual also offers a number of insurance riders to customize your coverage. For example, you can buy a rider that will increase your benefits’ salary over time, just like you would see an increase in salary over time if you weren’t too injured to work.

3. Mutual of Omaha

Mutual of Omaha offers a number of short- and long-term disability plan options. You can even customize your plan to include coverage for accidents, work-related injuries and additional survivors’ benefits if you lose your life after a disabling injury.

Optional benefits and riders include rehabilitation incentives, critical illness riders and return of premium after you’re disabled for 90 days.

Policies from Mutual of Omaha are guaranteed renewable until you reach age 67 and cannot be canceled by the insurance company unless you don’t pay your premium. Mutual of Omaha’s plans also include a unique disability percentage benefit as well. If you’re partially disabled and can only complete 50% of your work tasks, for example, you’ll receive 50% income supplementation.  

What’s Disability Insurance?

Disability insurance is a type of insurance coverage that protects your income if you suffer a disability that renders you at least partially unable to do your job.

For example, if you’re a court reporter and you break your hand, this type of coverage will supplement a portion of your income when you’re unable to work. There is no one standard definition of “disabled” used in the insurance industry, so individual policies differ.

Policies that employ a broader definition of disability tend to also have higher premiums, while policies that only pay out under very specific circumstances usually cost less per month.

Who Needs Coverage?

If you’re an independent contractor, you aren’t required to carry disability insurance except in certain high-risk industries in some states. However, if you’re a business owner who employs at least one worker, you may be required to purchase a special type of disability insurance for your employees called workers’ compensation.

Workers’ compensation is a type of disability insurance that grants employees medical benefits and wage replacement. In exchange, you relinquish your ability to sue your employer if you’re injured on the job.

Workers’ compensation is different than disability policies because it only covers injuries sustained at work. Disability insurance offers you a payout regardless of where or how you are injured unless specifically stated otherwise in your policy.

Workers’ compensation requirements vary drastically by state. For example, if you’re a business owner in Rhode Island, you’re not required to purchase workers’ compensation insurance unless you employ more than 3 people, while business owners in California must purchase workers’ compensation as soon as you hire your first employee.

To learn about your state’s specific workers’ compensation requirements, visit the National Federation of Independent Business.

Disability Insurance vs Health and Life insurance

This type of coverage can be used with your health and life insurance policies to keep you financially stable in the event you become disabled.

Health Insurance vs Income Insurance for Disabilities

Disability income insurance is different than health insurance, though many policy providers can bundle both types of insurance together for a discounted rate. Health insurance only covers the costs of receiving medical care and filling prescriptions.

It doesn’t supplement your insurance even if you become permanently disabled. Disability income insurance, on the other hand, won’t cover the costs of treatment for your injury, but it does provide you with income while you focus on healing or managing your condition.  

For example, let’s say that you’re a contractor, you break your hand, and you’re unable to work. Your health insurance would cover the cost of immediate and ongoing medical treatments such as medical care at the hospital, physical therapy, prescription painkillers, etc.

Disability income insurance won’t assist you in paying your medical bills but will provide compensation to supplement your income as you’re sidelined from your job.

Life Insurance vs Income Insurance for Disabilities

Life insurance only offers compensation to your beneficiaries when you die, but usually doesn't offer protection if you become disabled. In rare circumstances, you may be able to access “living benefits” through your life insurance, but this is usually restricted to policyholders who have been diagnosed with a terminal illness.

The bottom line? Disability, health and life insurance are all very different, and you’ll need more than one policy if you want multiple protections.

Types of Disability Insurance

There are two major types of insurance policies that you can buy from independent coverage providers to help protect your income if you become disabled:

Short-term Disability: Short-term policies typically replace between 60% and 70% of your base salary and payout over the course of 6 months to a year, depending on your policy specifics. As the name suggests, short-term disability policies are not intended to compensate for permanent injuries or disabilities. Short-term policies also have shorter waiting periods before insurance coverage “kicks in,” typically between 1 to 2 weeks after you sign onto your policy.

Long-term Disability: Long-term policies typically replace 40% to 60% of your standard income. Long-term benefits extend much further than short-term disabilities, usually until the disability ends or you reach retirement age — whichever comes first. Long-term policies usually have longer waiting periods than short-term policies; the most common waiting period is 90 days until benefits begin.

It’s important to note that even if you don’t have a private disability policy, you may be eligible for Social Security Disability Insurance (SSDI) even if you’re under the age of 65. However, SSDI is not a reliable choice for most individuals — the policy is notoriously difficult to qualify for and over 65% of initial claims are denied because the definition of a “disability” is so strict.

Even if you do qualify for SSDI, it can take over two years to begin receiving benefits. If you believe that you’re at a particularly high risk of becoming disabled, it’s better to buy a private policy.

How Much You Can Expect to Pay

On average, you can expect to pay between 1% and 3% of your annual gross income for your disability insurance each year. However, the specific amount you’ll pay for your disability insurance depends upon a number of factors, including:

  • How much money you earn annually: If you make more money, your insurance will have to give you more compensation if you suffer a disability, so you’ll pay more for your premium.
  • Your gender: Women tend to file more disability insurance claims, so their rates are higher.
  • Your occupation: If you work in a high-risk industry, you’ll pay more for your premium.
  • Your plan’s definition of a disability: Plans with a broader definition of disability usually cost more because they increase the chance that you’ll receive compensation.
  • Whether or not you smoke: Just another reason to quit — smokers pay more for disability insurance than nonsmokers.

Is Disability Insurance Worth It?

Is another insurance premium really worth it? Take the following factors into consideration if you’re still debating whether you need disability insurance.

When It’s Worth it

  • High-Risk Occupations: Serious injuries are much more common in some professions, particularly those heavily physical in nature. If you work in the fire protection, farming, ice manufacturing, mining, police protection or raw metal processing industry, you should seriously consider buying some form of disability insurance.
  • When You Have High Student Loan Debt: Doctors, lawyers and other highly skilled professionals often have large student loan balances — and may quickly fall behind on payments if they lose their ability to work. Disability insurance can help you keep up with bills in the event that you’re injured and unable to do your job.
  • You Don’t Have Much in Savings: When your savings account looks sparse, paying for another insurance premium may seem counterproductive. However, if you’re injured and unable to work without savings, medical bills and living expenses can wreak financial havoc on your household. Disability insurance can protect you against total financial loss.

When It’s Not Worth it

  • Your Employer Offers Group Disability Insurance: Chances are that your employer offers multiple types of group disability insurance policies in addition to workers’ compensation. Group disability policies are often much less expensive than individual policies, so talk to your supervisor or HR manager to learn more about employer-sponsored options.
  • You Have Plenty in Savings: A robust emergency fund can help you stay afloat if you’re unable to work for a short period of time. If you currently have at least 6 months’ worth of savings in the bank, the cost of disability insurance may outweigh its benefits.

How to Get Disability Insurance Coverage

Getting disability insurance is similar to getting life insurance, homeowners insurance or motorcycle insurance. First, you’ll need to look for quotes from insurance providers. Most providers now allow you to get a quote online in as little as a few minutes.

When you’ve chosen a provider, an agent will get in touch with you via phone or email and present you with a list of policy options. Read through each option thoroughly, make careful note of when your policy’s coverage begins and pay your first month’s premium.

What to Look for in a Policy

Some qualities to look for in a great disability insurance policy include:

Guaranteed renewable coverage: What good is a disability insurance policy if your insurance provider can cancel it when you’re injured. Look for a policy with a “guaranteed renewal” policy — this means that your insurance agent cannot cancel your benefits if you’re injured or become disabled.

Broad definition of disability: Policies with a wider definition of what counts as a disability will offer you compensation in a wider range of circumstances.

Limited waiting period: Most insurance policies have a waiting period from the time you sign on to the time your benefits and coverage kick in. Look for an insurance provider that offers shorter waiting periods — 14 days is considered average for a short term policy.

Protecting Your Income

The most valuable asset in your home may not be your car or a family heirloom — it’s your ability to work and earn a living. A disability can change everything in a second. If you work in a high-risk field and you don’t currently have disability insurance through your job, consider collecting a few quotes from competing providers. You might be surprised at how little it costs to protect your income and lifestyle.

Q

Is long term disability insurance worth it?

A

Long term disability insurance is worth it if you want income protection until you retire.

Q

What is the purpose of disability insurance?

A

The purpose of disability insurance is to replace a portion of your income should you become ill or disabled.

Q

How much disability insurance is enough?

A

You will receive about 60% of your gross pay from disability insurance, which means you will get about as much as your take home pay.

About Sarah Horvath

Sarah is an expert in the insurance, investing for retirement and cryptocurrency space.