Everything you own rests on one thing: your paycheck
Most families insure the house and the car before the income that pays for both.
Disability income insurance is the coverage people skip and later wish they hadn't. The Social Security Administration estimates about 1 in 4 of today's 20-year-olds will experience a disability before retirement age — a far higher chance than the events most households do insure against.
What disability coverage actually replaces
A policy pays a percentage of your income — typically around 60% — while you are unable to work, after a waiting period you choose. The two details that decide whether a policy is worth having are the definition of disability and the benefit period. "Own occupation" coverage pays if you cannot do your specific job; "any occupation" pays only if you cannot do any work you are reasonably suited to, which is a much harder bar. The difference matters enormously and is rarely explained at the point of sale.
Critical illness cover, and why it's different
Critical illness pays a lump sum on diagnosis of a covered condition — commonly heart attack, stroke or cancer — regardless of whether you can still work. It is designed for the costs that arrive alongside a serious diagnosis: deductibles, travel to treatment, a spouse taking unpaid leave, adaptations at home. It complements disability coverage rather than duplicating it.
If you're self-employed, there is no safety net underneath
Employees often have some group disability coverage, frequently less than they assume and taxable if the employer paid the premium. The self-employed usually have nothing at all, while depending on their own capacity to work more completely than anyone. If your emergency fund would run out before you recovered, this is the gap to close first.
Common questions about income protection
- Doesn't Social Security cover disability?
- Social Security Disability Insurance exists but uses a strict definition, involves a long application and appeals process, and pays modestly. It is a floor, not a replacement for your income, and a great many claims are denied initially.
- My employer provides disability cover. Is that enough?
- Check two things: how much of your income it replaces, and whether benefits would be taxable. Group coverage is often around 60% of base salary, excludes bonus and commission, and is taxable if your employer paid the premium — so the real replacement rate can be considerably lower than it appears. It also ends with the job.
- What does "own occupation" mean and why does it matter?
- Own-occupation coverage pays if you cannot perform your specific job, even if you could do some other work. Any-occupation coverage pays only if you cannot do any work you are reasonably suited to. For anyone with specialised skills, own-occupation is substantially more valuable, and the wording is worth reading before you buy.
- How long should the waiting period be?
- It should match how long your savings could genuinely cover expenses. A longer waiting period lowers the premium, so the right answer is the longest period you could actually survive — not the shortest one you could buy.
Often looked at alongside this
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