Disability Insurance

For most working people, their ability to earn an income is their most valuable financial asset. Disability insurance protects this income, paying a regular benefit, typically a percentage of previous earnings, often 50% to 70%, while they are unable to work.

Policies are commonly divided into short-term disability insurance, which pays benefits for a few months, and long-term disability insurance, which can pay benefits for years or until retirement age. In the United Kingdom and some other countries, similar cover is known as income protection insurance.

Key features include the waiting period, how long a person must be unable to work before benefits begin; the benefit period, how long benefits can last; and the definition of disability. Some policies pay if the person cannot do their own occupation, while others pay only if they cannot do any suitable work, which is a stricter test.

For example, a self-employed graphic designer who injures their hand and cannot work for six months might receive monthly payments from their disability insurance after a waiting period, helping them cover living costs.

Many employers offer disability insurance as a workplace benefit, and government social security systems may provide basic disability benefits, which are often much lower than previous earnings.