Disability Income Insurance

The Most Underinsured Risk in America

Disability income insurance is arguably the most overlooked and underinsured risk facing working Americans. The statistics are sobering:

• One in four of today's 20-year-olds will experience a long-term disability before reaching age 67
• About 30% of people ages 35-65 will face a disability lasting at least 90 days
• Only 43% of working Americans own disability insurance (2025 data)
• 51 million working adults have no disability coverage beyond basic Social Security

Perhaps most concerning: nearly half of U.S. households would face financial hardship within six months if the primary wage earner became unable to work. Yet less than 1 in 5 consumers (18%) say they have individual disability coverage.

Why Disability Is More Likely Than Death

Many clients focus on life insurance while ignoring disability coverage. Consider this reality check for a 35-year-old professional:

The financial impact of disability can actually exceed death because:

• The disabled person still has living expenses
• Medical costs often increase dramatically
• Lost income compounds over time
• Retirement savings stop while expenses continue

---

Disability Definitions: Own-Occupation vs. Any-Occupation

The definition of "disability" in a policy is perhaps the most critical factor in determining whether a claim will be paid. There are significant differences between policy types.

Own-Occupation Definition

Own-occupation policies consider you totally disabled if you are unable to perform the material and substantial duties of YOUR specific occupation---even if you can work in another occupation.

Key characteristics:

• Most favorable definition for the insured
• Allows you to work in another occupation and still receive full benefits
• Significantly more expensive premiums
• Ideal for highly specialized professionals (surgeons, dentists, pilots)

Example: A surgeon develops hand tremors and can no longer operate. With a true own-occupation policy, they receive full disability benefits even if they transition to teaching medicine or doing consultations---work they CAN still perform.

Any-Occupation Definition

Any-occupation policies consider you totally disabled only if you are unable to perform the duties of ANY occupation for which you are reasonably suited by education, training, and experience.

Key characteristics:

• Most restrictive definition
• Benefits denied if you can perform ANY suitable work
• Less expensive premiums
• Courts often interpret "reasonably suited" to protect insureds somewhat

Example: The same surgeon with hand tremors would likely NOT qualify for benefits under an any-occupation policy because they could still teach, consult, or work in hospital administration.

Modified Any-Occupation (Gainful Occupation)

A middle-ground approach that considers whether you can perform any occupation for which you are reasonably fitted by education, experience, training, AND prior economic status.

Key distinction: The "prior economic status" component means a surgeon earning $500,000 annually would not be expected to take a $50,000 administrative job.

Split Definition (Transition Policies)

Many policies use a split definition approach:

This is common in employer-sponsored group long-term disability plans. Clients need to understand this transition can result in benefit termination even if their condition hasn't improved.

Comparison Table: Disability Definitions

---

Elimination Period

The elimination period (also called the "waiting period") is the length of time after disability onset before benefits begin. It functions like a deductible---measured in time rather than dollars.

Common Elimination Periods

Strategic Considerations

Key planning principle: The elimination period should align with the client's emergency fund and other short-term disability resources.

• Recommended approach: Choose the longest elimination period the client can afford to self-insure
• Cost savings: A 90-day elimination period can cost 15-25% less than a 30-day period
• Coordination: If employer provides short-term disability (typically 90 days), individual policy elimination period can match

---

Benefit Period

The benefit period determines how long disability benefits will be paid.

Common Benefit Period Options

Best practice: For most working professionals, a benefit period extending to age 65 or 67 provides the most comprehensive protection against the true financial devastation of long-term disability.

---

Social Security Disability Insurance (SSDI)

Many clients assume Social Security will cover their disability needs. The reality is far more restrictive.

SSDI Definition of Disability

Social Security uses a very strict definition of disability:

"Inability to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months."

Critical points:

• Disability must prevent you from doing ANY substantial gainful activity---not just your occupation
• Must last 12 months or more (or result in death)
• Average denial rate is 68% for initial applications
• Appeals process can take years

SSDI Benefit Amounts (2025-2026)

Reality check: The average SSDI benefit of approximately $18,500 per year falls below the federal poverty guideline for a two-person household ($21,150 in 2025). This underscores why private disability insurance is essential for income protection.

Substantial Gainful Activity (SGA) Limits

If you can earn above these thresholds, you generally don't qualify for SSDI benefits.

SSDI Eligibility Requirements

To qualify for SSDI, workers must have earned sufficient "credits":

• Age 31+: 40 credits (10 years of work) with 20 credits in the last 10 years
• Ages 24-31: Credits equal to half the quarters since turning 21
• Under age 24: 6 credits in the 3 years before disability

Five-month waiting period: Even if approved, SSDI benefits don't begin until the sixth full month of disability.

---

Integration with Other Coverage

Many group disability policies include Social Security integration provisions that reduce benefits by SSDI amounts received. Clients should understand:

• Full integration: Group benefit reduced dollar-for-dollar by SSDI
• Partial integration: 50% offset by SSDI
• No integration: Benefits paid in full regardless of SSDI (rare in group plans)

This integration is one reason why individual disability insurance---which typically doesn't integrate with SSDI---may be preferable for high earners.