Planning for the Unpredictable: What to Know About Disability Insurance

January 18, 2024

By cdarmody on January 18, 2024

Key Considerations

  • Ensure that your level of income replacement will be sufficient. Most individuals, especially high earners, should explore coverage on top of their employer-sponsored benefit. 
  • Depending on your career, you may want to consider "own occupation" vs. "any occupation” coverage. 
  • Since disability policies have a period before they will start paying benefits, it's important to have a suitable emergency fund to bridge the gap between loss of income and when disability benefits begin.

When it comes to safeguarding your financial future, disability insurance is a crucial part of a comprehensive plan. Having proper disability insurance coverage can give you confidence that your financial needs will still be met should you find yourself sidelined by sickness, injury, or other unanticipated circumstances. 

Disability insurance coverage comes in two primary forms: short-term and long-term policies. But you shouldn’t think of this as an either-or choice. Many people carry both to be prepared for a range of coverage needs.

Short-Term Disability 

Knowing what your policy is designed to cover and when it will pay out is an important step in planning your coverage. A short-term disability policy might kick in if you’re going to be temporarily out of work for a qualifying reason, such as major surgery or illness. It is also often used by women as part of their maternity leave coverage. During this time, it can replace a portion of your income to help cover immediate living expenses like rent, mortgage, and utility bills. 

Short-term disability insurance comes with limitations and specific conditions that must be met before a policy will pay out. Often, an elimination period, or waiting period, must elapse between the onset of the disability and when benefits begin. Other limitations could include the exclusion of some illnesses, pre-existing health conditions, or elective procedures. When your coverage does kick in, short-term policies generally only provide benefits for a few weeks or a few months. If you find yourself out of work beyond this period, long-term disability insurance or other financial resources may be necessary.

Long-Term Disability 

Long-term disability insurance is designed to respond to more severe health conditions or injuries. It provides income replacement over an extended period, supporting you and your family during a prolonged absence from work. If your disability results in a career-ending condition, long-term disability insurance can truly be a financial lifeline. It helps maintain your standard of living and when your ability to earn a living is compromised. 

Long-term policies also carry limitations and conditions, including waiting periods of a month or more before coverage kicks in, varying definitions of what is considered a disability or gainful occupation, and exclusion of certain pre-existing conditions. Many policies will not replace an individual’s full amount of pre-disability income; this is especially true for high earners. It’s also important to know that the income is taxable when disbursed as an employer-paid benefit. 

Policies have a maximum benefit duration, which is often stated in terms of years or until a certain age (e.g., until age 65), at which point benefits will cease even if the disability persists. Long-term disability benefits may be contingent on the insured continuing to receive necessary medical treatment and following prescribed rehabilitation plans. It may also need to be coordinated with other sources of income, such as Social Security Disability Insurance (SSDI) or workers' compensation. If you find yourself or a member of your family needing to use your long-term disability insurance, you’ll want to closely track and coordinate across these various programs.

Other Considerations

If you’re purchasing an independent policy, you’ll face the decision between own-occupation (OO) and any-occupation (AO) coverage. Own-occupation disability insurance is designed for professionals who want to protect their ability to perform their specific job or occupation. This means that if they become disabled and are unable to perform the duties of their current role, they can still receive benefits even if they are capable of working in a different capacity. Any-occupation disability insurance provides coverage only if the insured individual is unable to work in any occupation for which they are reasonably suited based on their education, training, and experience. The choice between own-occupation and any-occupation disability insurance will depend on your career, financial goals, and risk tolerance, as well as your confidence in finding alternative employment in the event of a disability. Own-occupation insurance is likely to be more expensive but may be the right choice for those with specialized careers, such as physicians and lawyers.

Enrolling in Coverage 

Enrolling in the right disability insurance requires careful consideration and planning, just like any other part of your financial and life planning. If you have access to employer-sponsored coverage, take advantage of your benefits during open enrollment or when you begin a new job. If your employer-sponsored coverage is insufficient, or if you are self-employed, consider an individual disability insurance policy. Begin by assessing your financial needs, including monthly expenses and potential medical costs, as you research private plans and compare benefits and policy terms. Seeking professional advice from a financial advisor or insurance specialist can provide valuable insights and ensure that the chosen coverage aligns with your unique circumstances and financial goals. And of course, just as you do for your other insurance policies, be sure to regularly review and update your disability insurance coverage to adapt to changing life circumstances and ensure ongoing protection. 

If you’re struggling to understand your coverage needs and options, be sure to speak with a professional advisor who can help you find more information and the options that are right for you. Reach out to your Curi RMB Capital advisor today with any questions.


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