What is your biggest asset? Some people may think it is their house or car, but for most people, their biggest asset is their ability to earn an income.

Here is an example. Assume that you are 30 years old and earn $30,000 per year at your job. If you also assume that your earnings will increase at 3 percent per year, and you plan to retire at age 65, you will earn $1,898,278 in your working career. Obviously, being able to work is a large asset.

Now assume that you become injured and you are unable to work. Your income will drop and your expenses will rise, which means you will go into debt.

This may be a pretty scary thought, but there are ways to protect your income if you become injured. One way is with disability income insurance.

The purpose of disability income insurance is to partially replace your income if you are unable to work because of sickness or an accident.


Types of Disability Insurance

The government provides some disability coverage, known as social insurance programs. These include:
  • Workers' compensation programs - This is insurance that employers are required to have on their employees. It covers workers who get sick or injured while on-the-job. However, if you are not injured while working, this program will not apply. Check out the federal Office of Workers' Compensation Programs website at http://www.dol.gov/esa/owcp_org.htm


  • Social Security disability - pays benefits to you and certain members of your family if you are "insured," providing you have worked long enough and paid Social Security taxes. Check out the Social Security Online "Disability Programs, Benefits for People with Disabilities," website at http://www.ssa.gov/disability

 Important Things to Know

Social Security has a very strict definition of disability. It will pay no benefits for a partial or a short-term disability. Social Security will consider you disabled if:

  • You cannot do the work you did before and it is decided that you cannot adjust to other work because of a medical condition. In addition, your disability must last or be expected to last for at least a year or result in your death


To qualify for Social Security disability benefits, you must have worked long enough and recently enough while paying into Social Security. You can earn up to a maximum of four work credits per year. Generally you need 20 credits earned in the past ten years, ending with the year you become disabled. Also be aware that if you do receive benefits under Workers’ Compensation, your Social Security Benefits will be reduced.

Because of the difficulty in qualifying for Social Security disability benefits, it is wise to use other methods to protect yourself from the risk of a disability.

 Individual Disability Income Insurance

It may be possible that your employer does not offer any disability protection plans, and due to the nature of your injury, you may not qualify for any of the social insurance programs. If this is the case, or your current employer-provided protection will not provide you with enough income to meet your family's needs, you may want to talk to an insurance agent about an individual disability income insurance policy.

An individual disability policy is the best way to protect your income from the risk of a disability. An individual policy will usually only allow you to insure 50 percent to 70 percent of your income. There is a limit because insurers do not want you to make more money when you are disabled than when you are working. If you did, there wouldn't be much incentive to return to work when you are able.

While individual policies may cost you more in premiums when you pay the premiums yourself, disability benefits are not taxed. (Benefits from employer-paid policies are subject to income tax.) You may also keep your individual disability policy as you move from job to job. You will need to check with your human resources department to see if your employer-paid policy can be converted to an individual policy if you change jobs.

Most disability insurance companies will offer short-term and long-term individual disability policies. Think about how long you will need benefits if you are disabled. Many people believe that having both short and long-term protection is important to their financial security.