Most people insure their car, home, and even their phone—but fail to insure their most valuable asset: their ability to earn an income.
Here’s an uncomfortable truth: You’re more likely to become disabled during your working years than you are to die. Yet only 35% of American workers and 30% of Canadian workers have long-term disability insurance beyond basic government programs.
If you couldn’t work for 6 months, a year, or several years due to injury or illness, how would you pay your bills? Your mortgage? Your family’s expenses?
Disability insurance replaces a portion of your income if you can’t work due to disability. It’s not exciting, but it’s one of the most important protections for your financial security.
Whether you’re in the United States or Canada, understanding disability insurance, how it works, and what coverage you need could mean the difference between maintaining your lifestyle during a health crisis or facing financial ruin.
What Is Disability Insurance?
Disability insurance (also called income protection or disability income insurance) pays you a monthly benefit if you become disabled and can’t work.
What it covers:
- Illness (cancer, heart disease, mental health conditions, chronic diseases)
- Injuries (accidents, back injuries, repetitive stress)
- Conditions that prevent you from working
- Both temporary and permanent disabilities (depending on policy)
What it typically doesn’t cover:
- Pre-existing conditions (usually 12-24 month exclusion)
- Self-inflicted injuries
- Disabilities from illegal activities
- Disabilities while committing a crime
- War or active military duty
- Normal pregnancy (though complications may be covered)
Why you need it: Your income funds everything—mortgage, food, healthcare, retirement savings. Without income, all of that stops. Disability insurance ensures money keeps flowing even when you can’t work.
The Statistics That Should Scare You
Disability Risk:
- 1 in 4 twenty-year-olds will become disabled before retirement (Social Security Administration)
- Average long-term disability claim lasts 34.6 months (Council for Disability Awareness)
- 90% of disabilities are from illnesses, not accidents (most people assume accidents)
- #1 cause of disability: Musculoskeletal disorders (back/joint problems) – 29%
- #2 cause: Cancer – 15%
- #3 cause: Cardiovascular disease – 8%
Financial Impact:
- 38% of disabilities result in foreclosure or losing home
- 27% exhaust their savings within 6 months
- 50% report having to borrow money from family/friends
Compare to death:
- Chance of becoming disabled: 25%
- Chance of dying during working years: 13%
Yet:
- Workers with life insurance: 60%
- Workers with disability insurance: 35%
People insure against the less likely event (death) and ignore the more likely one (disability).
Types of Disability Insurance
There are two main types, differentiated by how long they pay benefits.
Short-Term Disability Insurance (STD)
Provides income replacement for brief disabilities, typically 3-6 months.
Coverage period: 3 months to 1 year (most commonly 3-6 months)
Benefit amount: 60-70% of your salary
Elimination period: 0-14 days (how long you wait before benefits start)
What it covers:
- Recovery from surgery
- Serious illness requiring time off
- Pregnancy/childbirth (in some policies)
- Non-work-related injuries
- Short-term medical conditions
Cost:
- US: $20-60/month for $50,000 salary
- Canada: $30-70 CAD/month for $50,000 salary
Who provides it:
- Often employer-provided benefit (60% of US workers have access)
- Individual policies available
- Some states mandate it (CA, NY, NJ, RI, HI, Puerto Rico)
- Canadian employers frequently provide
When you need it:
- No emergency fund
- Employer doesn’t provide sick leave
- Self-employed
- Sole income earner for family
Long-Term Disability Insurance (LTD)
Provides income replacement for extended disabilities, potentially until retirement.
Coverage period: 2 years, 5 years, to age 65, or lifetime (varies by policy)
Benefit amount: 50-70% of your salary (usually max $10,000-$20,000/month)
Elimination period: 30, 60, 90, 180 days, or 1 year (most common: 90 days)
What it covers:
- Serious illness (cancer, heart disease, autoimmune disorders)
- Chronic conditions (multiple sclerosis, Parkinson’s, severe arthritis)
- Mental health conditions (in many policies, with limitations)
- Permanent injuries
- Progressive diseases
Cost:
- US: 1-3% of annual salary
- Example: $75,000 salary = $75-$225/month
- Canada: Similar (1-3% of salary)
Who provides it:
- Employer group plans (40-50% of workers have access)
- Individual policies (from insurance companies)
- Professional associations
- Government programs (Social Security/CPP – but hard to qualify)
When you need it:
- You have dependents
- You’re the primary earner
- You have significant expenses (mortgage, debts)
- You don’t have enough savings to retire early
- Basically: If you need your income, you need this
Understanding Long-Term Disability Definitions
The most critical part of any disability policy is how it defines “disability.” This determines when benefits are paid.
Own-Occupation Coverage (Best, Most Expensive)
You’re considered disabled if you can’t perform the duties of your specific occupation, even if you could do another job.
Example:
- You’re a surgeon
- You lose dexterity in your hands from nerve damage
- You can’t perform surgery
- You COULD work as a consultant or teach
- Own-occ policy pays benefits even though you could work in another capacity
Who needs it:
- Professionals with specialized skills (doctors, dentists, lawyers, executives)
- High earners
- People with occupation-specific abilities
Cost: 20-40% more expensive than other definitions
Worth it if: Your income depends on specialized skills you couldn’t easily transfer
Modified Own-Occupation
You’re disabled if you can’t do your own job AND you’re not working in another occupation.
Same example:
- You can’t perform surgery
- If you DON’T take consulting job: Benefits paid
- If you DO take consulting job: Benefits stop (even if it pays less)
Difference: Discourages returning to work in different capacity
Any-Occupation Coverage (Most Restrictive, Cheapest)
You’re only considered disabled if you can’t perform any occupation for which you’re reasonably qualified by education, training, or experience.
Example:
- You’re a surgeon earning $400,000
- You lose hand dexterity
- You CAN work as medical consultant earning $100,000
- Any-occ policy pays NOTHING because you can work in some capacity
Who gets this:
- Group employer plans (most common)
- Budget individual policies
- Government disability programs (Social Security, CPP)
The problem: Very hard to qualify. Must be severely disabled to meet definition.
Residual/Partial Disability Coverage
Pays partial benefits if you can work but earn less due to disability.
Example:
- You earn $100,000
- Back injury prevents standing long periods
- You return to work part-time, earning $50,000
- Residual benefit pays percentage of lost income
Formula: (Lost income %) × Full benefit = Residual benefit
Why it’s important: Most disabilities aren’t all-or-nothing. You might return to work with reduced capacity.
Always get this rider – it’s essential for realistic disability scenarios.
Government Disability Programs
Both US and Canada have government disability insurance, but qualifying is difficult and benefits are often insufficient.
United States: Social Security Disability Insurance (SSDI)
Who’s covered: Workers who’ve paid into Social Security (most US workers)
Eligibility:
- Must have worked long enough (typically 5 of last 10 years)
- Must meet SSA’s strict definition of disability
- Must be unable to do any substantial gainful activity
- Condition must last 12+ months or result in death
- Must be totally disabled (very restrictive definition)
Benefits:
- Average benefit: $1,537/month (2024)
- Maximum benefit: $3,822/month (2024)
- Calculated from your earnings history
- Usually 30-50% of previous income
Waiting period: 5 months from disability onset
How long it takes:
- Initial application: 3-5 months
- If denied (60% are), appeals can take 1-2 years
- Only 35% ultimately approved
Family benefits:
- Dependents may receive additional benefits
- Up to 150-180% of worker’s benefit for family
Why SSDI isn’t enough:
- Very hard to qualify (most claims denied initially)
- Long waiting period (5 months + application time)
- Benefits often insufficient (average $1,537/month)
- Must be totally disabled (can’t work at all)
- Doesn’t cover short-term or partial disabilities
Canada: Canada Pension Plan Disability (CPP-D)
Who’s covered: Canadians who’ve contributed to CPP
Eligibility:
- Must have contributed to CPP in 4 of last 6 years
- Must have severe and prolonged disability
- Disability must prevent any regular employment
- Must be under age 65
Benefits:
- Flat-rate portion: $583.23/month (2024)
- Earnings-related portion: Based on contributions
- Average total benefit: $1,132/month (2024)
- Maximum benefit: $1,606/month (2024)
Waiting period: 4 months from disability
Children’s benefit: Additional $290/month per child
Application process:
- Can take 4-6 months (or longer)
- Many applications denied initially
- Appeals process available
Why CPP-D isn’t enough:
- Restrictive definition (must be unable to work regularly in any job)
- Benefits too low for most people’s expenses
- Long waiting period
- Difficult qualification process
Workers’ Compensation
Both US and Canada have workers’ compensation for work-related injuries/illnesses.
Covers:
- Injuries on the job
- Occupational illnesses
- Work-related disabilities
Does NOT cover:
- Non-work-related disabilities (most disabilities)
- Illnesses unrelated to work
- Disabilities from activities outside work
Most disabilities aren’t work-related, so workers’ comp doesn’t help in majority of cases.
Individual Disability Insurance: Key Features
When buying individual long-term disability insurance, understand these important features and riders:
Benefit Period
How long the policy pays benefits.
Options:
- 2 years: Cheapest, insufficient for serious disabilities
- 5 years: Still limited
- To age 65: Standard, recommended
- Lifetime: Most expensive, rarely needed
Recommendation: Benefits to age 65 (when Social Security/CPP and retirement savings begin)
Elimination Period (Waiting Period)
How long you wait from becoming disabled until benefits start.
Options:
- 30 days: Expensive
- 60 days: More affordable
- 90 days: Standard, recommended
- 180 days: Cheaper
- 1 year: Cheapest, risky
Recommendation:
- 90-day elimination period (most common)
- Use emergency fund + short-term disability to bridge the gap
- Longer elimination = lower premium (save on premium if you have savings)
Benefit Amount
Monthly payment you’ll receive.
Limits:
- Usually 50-70% of your gross income
- Maximum typically $10,000-$20,000/month
- Insurers won’t replace 100% (incentive to return to work)
Tax implications:
- If you pay premiums: Benefits are tax-free
- If employer pays premiums: Benefits are taxable
Calculation example:
- Gross income: $100,000/year
- Coverage: 60%
- Monthly benefit: $5,000
- If you paid premiums: $5,000/month tax-free
- If employer paid: $5,000 taxable (net ~$3,500-$4,000 after taxes)
Recommendation: Buy enough to maintain lifestyle, but understand you won’t replace full income
Cost of Living Adjustment (COLA)
Increases your benefit annually to keep pace with inflation.
Options:
- No COLA: Benefit stays flat (purchasing power erodes)
- Simple COLA: Increases by fixed % (e.g., 3%/year)
- CPI-based COLA: Increases with Consumer Price Index
Why it matters: If disabled at age 35 and receive $5,000/month for 30 years without COLA, that $5,000 in 2054 will have purchasing power of ~$2,000 in today’s dollars.
Cost: Adds 15-25% to premium
Recommendation: Get it—essential for long-term disabilities
Non-Cancelable & Guaranteed Renewable
Non-Cancelable:
- Insurer cannot cancel policy
- Cannot raise premiums
- Cannot change terms
- Most valuable feature
Guaranteed Renewable:
- Insurer cannot cancel
- CAN raise premiums (for entire class of policyholders)
- Cannot change other terms
Recommendation: Pay extra for non-cancelable if you can afford it
Important Riders to Consider
Residual/Partial Disability Rider:
- Pays partial benefits if working reduced hours/capacity
- Essential – most disabilities aren’t all-or-nothing
- Should be included in every policy
Future Increase Option (FIO):
- Allows buying more coverage later without medical underwriting
- Good for young people expecting income growth
- Costs 10-15% more
Catastrophic Disability Rider:
- Pays additional benefit if severely disabled (can’t perform 2+ activities of daily living)
- Adds 25-50% to total benefit
- Worth considering
Student Loan Rider:
- Pays student loan payments if disabled
- Good for young professionals with high student debt
Cost of Living Adjustment (COLA):
- Already discussed—highly recommended
Return of Premium:
- Refunds some premiums if you don’t claim
- Expensive (adds 40-60% to premium)
- Generally not worth it
Employer vs Individual Disability Insurance
Employer Group Disability Insurance
Advantages:
- Cheaper (group rates)
- Easy enrollment (no medical underwriting usually)
- Employer may pay some/all of premium
- Better than nothing
Disadvantages:
- Lose coverage if you leave job
- Usually “any-occupation” definition (restrictive)
- Benefits may be taxable (if employer pays premium)
- Limited benefit amounts
- Can’t customize coverage
- Less comprehensive than individual policies
Typical employer LTD:
- Benefit: 50-60% of salary
- Maximum: $5,000-$10,000/month
- Elimination period: 90-180 days
- Benefit period: To age 65
- Definition: Any-occupation
- No customization
Individual Disability Insurance
Advantages:
- Portable (keep if you change jobs)
- Can choose own-occupation definition
- Can customize benefit amount, period, riders
- Benefits are tax-free (if you pay premiums)
- Stronger protections
- Non-cancelable options
Disadvantages:
- More expensive
- Medical underwriting required
- Can be denied for health issues
- More complex to purchase
When you need individual policy:
- Self-employed
- High income (employer plan insufficient)
- Specialized occupation
- Want own-occupation coverage
- Want portability and control
Disability Insurance in the United States
Average Costs (Individual LTD)
Factors affecting cost:
- Age
- Gender (women pay more—higher claim rates)
- Occupation
- Health
- Smoking status
- Benefit amount
- Benefit period
- Elimination period
- Definition of disability
- Riders included
Typical costs (own-occupation, to age 65, 90-day elimination):
Age 30, $5,000/month benefit:
- Male, desk job: $80-120/month
- Female, desk job: $120-180/month
Age 40, $5,000/month benefit:
- Male, desk job: $120-180/month
- Female, desk job: $180-270/month
Age 50, $5,000/month benefit:
- Male, desk job: $180-280/month
- Female, desk job: $280-420/month
Occupation impacts:
- Office work (Class 5): Lowest rates
- Skilled trades (Class 3): 30-50% more
- Risky occupations (Class 1): 100%+ more or declined
Occupation Classes in US
Class 6 (Best Rates):
- Physicians, dentists, attorneys, CPAs, executives
- Highest income, lowest risk
Class 5:
- Engineers, architects, IT professionals, financial advisors
- Desk jobs, low physical risk
Class 4:
- Teachers, managers, administrative roles
- Some physical activity
Class 3:
- Skilled trades, sales roles with physical component
- Moderate risk
Class 2:
- Construction, manufacturing, delivery drivers
- Higher risk
Class 1 (Highest Rates or Declined):
- Heavy manual labor, high-risk jobs
- May be uninsurable
Disability Insurance in Canada
Average Costs (Individual LTD)
Similar factors to US, slightly different pricing.
Typical costs (own-occupation, to age 65, 90-day elimination):
Age 30, $5,000/month benefit:
- Male, desk job: $90-140 CAD/month
- Female, desk job: $140-200 CAD/month
Age 40, $5,000/month benefit:
- Male, desk job: $140-200 CAD/month
- Female, desk job: $200-300 CAD/month
Age 50, $5,000/month benefit:
- Male, desk job: $200-320 CAD/month
- Female, desk job: $300-450 CAD/month
Canadian Occupation Classes
Similar to US system:
- Professional (4A): Lowest risk, best rates
- White Collar (4): Office jobs
- Skilled (3): Trades, technical roles
- Manual Labor (2): Physical work
- High Risk (1): Dangerous occupations
Provincial Differences
Some provinces have additional programs:
Quebec: Different disability system through CNESST for work-related disabilities
All Provinces: Workers’ compensation for job-related disabilities
US vs Canada: Disability Insurance Comparison
| Aspect | United States | Canada |
|---|---|---|
| Government Program | SSDI ($1,537 avg) | CPP-D ($1,132 avg) |
| Qualification | Very difficult (60% denied) | Very difficult |
| Employer Coverage | 40-50% have access | 50-60% have access |
| Individual Cost | 1-3% of salary | 1-3% of salary (CAD) |
| Tax Treatment | Tax-free if you pay premium | Tax-free if you pay premium |
| Typical Definition | Any-occupation (group) | Any-occupation (group) |
| Own-Occ Available | Yes (individual policies) | Yes (individual policies) |
How Much Disability Insurance Do You Need?
Simple calculation:
- Monthly expenses: $6,000
- Other income if disabled: (Spouse income, investment income, etc.) $2,000
- Gap to cover: $4,000/month
- Add 20-30% for taxes/inflation: $5,000-$5,200/month
- Coverage needed: $5,000/month benefit
Detailed calculation:
Fixed expenses:
- Mortgage/rent: $2,000
- Utilities: $300
- Insurance premiums: $400
- Car payment: $400
- Minimum debt payments: $300
- Subtotal: $3,400
Variable expenses:
- Food: $800
- Transportation: $300
- Healthcare (increased): $500
- Childcare: $1,000
- Other: $500
- Subtotal: $3,100
Total monthly need: $6,500
Other income:
- Spouse income: $3,000
- Investment income: $500
- Total: $3,500
Coverage needed: $6,500 – $3,500 = $3,000/month minimum
Consider: Adding COLA, getting to-age-65 benefit period
How to Get Disability Insurance
Step 1: Assess Your Need
- Calculate monthly expenses
- Identify existing coverage (employer, government)
- Determine gap
Step 2: Check Employer Coverage
- Review employer STD and LTD
- Understand definition, benefit amount, period
- Identify gaps
Step 3: Get Individual Quotes
Work with:
- Independent insurance broker (shops multiple companies)
- Direct from insurers
- Financial advisors
Get quotes from 3-5 companies
Step 4: Compare Policies
Key factors:
- Definition of disability (own-occ vs any-occ)
- Benefit amount
- Benefit period
- Elimination period
- Riders included
- Premium cost
- Financial strength rating of insurer
Step 5: Apply
You’ll need:
- Medical history
- Occupation details
- Income verification (tax returns, pay stubs)
- Financial information
Underwriting process:
- Medical questionnaire
- Possible medical exam
- Occupation review
- Financial underwriting
Timeline: 4-8 weeks typically
Step 6: Review and Accept
- Verify all details correct
- Understand exclusions
- Confirm riders included
- Set up payment
Common Disability Insurance Mistakes
Mistake #1: Not Having Any
Most common and most dangerous. “It won’t happen to me” until it does.
Fix: Get at least employer coverage; supplement with individual if needed
Mistake #2: Relying Only on Government Benefits
SSDI/CPP-D are hard to qualify for and don’t pay enough.
Fix: Supplement with private insurance
Mistake #3: Accepting Any-Occupation Definition
Very restrictive; may not pay when you need it.
Fix: Get own-occupation if your job requires specialized skills
Mistake #4: Not Getting Residual/Partial Disability Rider
Most disabilities aren’t total; you may return to work part-time.
Fix: Always include residual disability coverage
Mistake #5: Skipping COLA
Inflation erodes benefit value over long disability.
Fix: Add COLA, especially if young
Mistake #6: Choosing Too Long Elimination Period
Saving on premium but risking financial hardship during waiting period.
Fix: Choose elimination period you can afford with savings
Mistake #7: Letting Employer Coverage Lapse When Leaving Job
Lose all coverage when you need it most (job transition).
Fix: Get individual policy before leaving, or immediately after
FAQs
Q: How likely am I to become disabled? A: 1 in 4 workers will experience a disability lasting 90+ days during their career. It’s more common than you think.
Q: What’s the #1 cause of disability claims? A: Musculoskeletal disorders (back/joint problems) – 29% of claims. Not accidents—illnesses cause 90% of disabilities.
Q: Can I get disability insurance if I’m self-employed? A: Yes, and you especially need it since you have no employer coverage. Work with broker who specializes in individual policies.
Q: Will I qualify if I have a pre-existing condition? A: Maybe. Insurers may: (1) Cover you with exclusion for that condition, (2) Charge higher premium, (3) Decline coverage. Shop multiple insurers.
Q: Is short-term disability worth it? A: Yes if: (1) No employer coverage, (2) Limited emergency fund, (3) Self-employed. Otherwise, emergency fund may suffice.
Q: Do mental health conditions count as disabilities? A: In many policies, yes, but often with limitations (24-month maximum benefit typical). Read policy carefully.
Q: What if I recover and return to work? A: Benefits stop when you’re no longer disabled per policy definition. Some policies offer “work incentive” benefits to encourage returning to work.
Q: Can I have both employer and individual disability insurance? A: Yes, and it’s smart if employer coverage is insufficient. Individual policy fills the gap.
Bottom Line: Disability Insurance Essentials
Why You Need It:
- 1 in 4 will become disabled during working years
- Government benefits hard to get and insufficient
- Your income funds everything—protect it
What to Get:
Minimum (If Tight Budget):
- Employer LTD (if available)
- 90-day elimination period
- Benefits to age 65
- Supplement with emergency fund
Recommended:
- Individual LTD policy
- Own-occupation definition
- 60-90 day elimination period
- Benefits to age 65
- Residual disability rider
- COLA rider
- Non-cancelable if possible
Who Especially Needs It:
- Primary income earner
- Self-employed
- High earners (employer coverage insufficient)
- Specialized occupations
- Anyone with dependents or significant expenses
Your Next Steps
- Calculate your monthly expenses – How much income do you need to replace?
- Review existing coverage – What does employer provide? Government benefits?
- Identify the gap – How much more coverage do you need?
- Get 3-5 quotes – Work with independent broker or multiple insurers
- Compare policies carefully – Definition, riders, cost
- Apply while healthy – Don’t wait until you have health issues
Your ability to earn income is your most valuable asset. Protect it.
Related Articles:
- Life Insurance Guide: US & Canada
- Understanding Insurance: Complete Overview
- Health Insurance Explained: US & Canada
- Best Disability Insurance Companies 2025
Questions about disability insurance? Share them in the comments below!
