You need enough disability insurance to keep up with your monthly expenses if you get hurt or sick and can’t work. The exact amount of disability insurance you need depends on your income, savings, and expenses.
Most insurance companies allow you to get a disability policy that covers around 60% of your gross pay, but you can get more coverage later if you need it.
What determines how much disability insurance you need?
Disability insurance replaces your income when you’re out of work because of a disability, but your income isn’t the only thing that determines the coverage you need — or whether you're someone who needs coverage at all.
You have to consider your income, expenses, and savings to figure out the right amount of disability insurance for you.
Your income
Your income is the most straightforward factor affecting how much disability insurance you should get, since you need enough disability insurance to replace your income.
Usually disability insurance will cover up to 60% of your pre-tax income, which typically comes close to your take-home pay. Most people should get as much coverage as they can afford.
Insurance companies may also allow you to “over-insure,” or get more disability insurance than your income. You might be able to over-insure if you’re studying to become a doctor or surgeon and expect a higher income later in life.
Your expenses
You need enough disability insurance to cover your expenses. This includes your big expenses, like your rent or mortgage, a car payment, and student loans, as well as smaller expenses like your grocery bills.
Depending on what your expenses are, you may need disability insurance riders. Riders change your disability policy’s benefits. Certain riders can help you pay off your student loans, contribute to a retirement plan, pay for rehab or job training, and more.
Even if you think you can live on less, having more disability insurance than you normally spend is worth it for any surprise costs, like medical bills your health insurance won’t cover.
Your savings
Your savings also factor into how much disability insurance you need.
On the one hand, you don’t have to rely on your savings to keep up with your expenses if you have disability insurance. On the other hand, if you have a lot of money saved up, you can use your savings to cover some expenses instead of paying higher premiums for more disability insurance you might not use.
If you don’t have a lot of money saved up, it’s worth having disability insurance to protect what savings you do have, and to avoid debt, foreclosures, and bankruptcy when you can’t work.
Disability insurance can also help you continue to save money while you’re out of work. You can put some of your disability benefits toward a savings account or get a rider that contributes to your retirement funds for you.
What to do when you need more disability insurance
You may need more disability insurance once your income and expenses grow and your old policy no longer covers all of your needs. There are a few ways to be sure you have the disability insurance you need as your life changes.
Ask for an increase in coverage: When you need more disability insurance, ask your insurance company for more coverage. You will have to go through the underwriting process again unless you have a rider that prevents it.
Be sure you have a future increase rider: A future increase rider lets you get more disability insurance without having to go take a medical exam again.
Get supplemental disability insurance: A supplemental disability insurance policy can help you close the gap between what an existing policy covers and your income and expenses.
Do you need long-term or short-term disability insurance?
You need long-term disability insurance for the most protection. Short-term disability insurance only pays benefits for between three and six months, but you can collect long-term benefits for decades after you can’t work.
Long-term disability insurance is a better bargain, too. Many people get short-term disability insurance through their employer at a low cost or for free, but buying short-term disability insurance yourself costs the same as a long-term policy.
→ Read more about short-term vs. long-term disability insurance
Other things to consider about disability insurance
You should consider your policy’s benefit and waiting periods while thinking about how much disability insurance you need. These affect when you can use your disability insurance.
Benefit period: Your benefit period is the time your benefits last after you can’t work anymore. Most of the time you can choose a benefit period that’s between one year and up to the time it takes you to get to retirement age, usually 65 to 70.
Waiting period: Your policy’s waiting or elimination period is the amount of time after you’re disabled that you have to wait to start receiving benefits. A longer waiting period isn’t a good idea if you can’t live off of your savings for that period of time.
→ Read about how long you should keep disability insurance
How much disability insurance costs
Most of the time, you can expect your disability insurance to cost between 1% to 3% of your income. The actual cost of disability insurance depends on these factors:
Benefit period: Shorter benefit periods are cheaper but offer less protection than a more expensive policy.
Habits: If you smoke or have other habits that increase the chance of you becoming disabled, your rates will be higher.
Income and occupation: Having a high-paying job means that you need more coverage, which in turn means more expensive premiums.
Medical history: Your rates will be lower if you have a clean bill of health and no pre-existing conditions.
Riders: Adding riders to your disability insurance can make your policy more expensive.
Waiting period: 90-day waiting periods are the most common, but a longer waiting period can be cheaper.
The best way to find the most affordable disability insurance for the coverage you need is by comparing quotes with a policycentral agent.
Frequently asked questions
How is disability insurance calculated?
There are many factors that insurance companies use to calculate what you’ll pay for disability insurance, but you can expect a policy to cost about 1% to 3% of your annual income.
What disabilities does disability insurance cover?
There’s a good chance your disability insurance will cover any injury or illness that keeps you from working, as long as it’s not because of a pre-existing condition.
Do you need disability insurance if you get a policy through work?
Yes, it’s smart to get disability insurance even if you get coverage from your employer. You have much less control over an employer-provided policy than a personal disability policy. Your benefits also tend to be lower with disability insurance you get through your job.
