Do I Need Disability Insurance? Who Should Buy It

Most people insure their home, their car, and their health. But the asset that pays for all of those things, your ability to earn an income, is often left unprotected. If you were suddenly unable to work for six months, a year, or longer, how would you pay your bills? Disability insurance exists to answer that question, but many people are unsure whether they actually need it.

The truth is that Social Security Disability Insurance (SSDI) replaces less than 40 percent of the average worker's income, pays an average of about $1,630 per month in 2026, and only covers total disability. For most working Americans, that is not nearly enough. This guide will help you assess whether you need private disability insurance, who benefits most from it, and when you might be able to skip it.

The Income Protection Gap

There is a significant gap between what most people earn and what they would receive if they became disabled. Understanding this gap is the first step in deciding whether you need coverage.

SSDI is the federal government's disability program. It is funded through payroll taxes and provides monthly benefits to workers who are unable to perform any substantial gainful activity due to a medical condition expected to last at least 12 months or result in death. The average SSDI benefit in 2026 is approximately $1,630 per month. For a worker earning $60,000 per year, that replaces only about 33 percent of their gross income.

SSDI also has a mandatory 5-month waiting period before benefits begin. During those five months, you receive nothing from Social Security. And qualifying for SSDI is difficult. The program requires that your disability be total, meaning you cannot perform any substantial gainful activity. Partial disabilities and short-term conditions do not qualify.

Even if you have employer-sponsored long-term disability, it typically replaces only 60 percent of your base salary. Bonuses, commissions, and overtime are usually excluded. And if your employer pays the premiums, the benefits you receive are taxable, which further reduces your take-home amount.

Who Needs Disability Insurance Most

Disability insurance is not a one-size-fits-all product, but certain groups of people face significantly more risk if they go without it. Here is who benefits most:

• Primary earners: If your income is the main source of financial support for your household, a disability without income replacement could be devastating. Bills do not stop because you cannot work.
• Self-employed workers: Freelancers, independent contractors, and business owners have no employer to provide group coverage, sick leave, or paid time off. When they stop working, their income stops immediately.
• Single-income households: If only one person in your household earns income, there is no second paycheck to fall back on. Disability insurance acts as your backup income source.
• People with significant debt: Mortgage payments, student loans, car loans, and other debts do not pause when you become disabled. Missing payments can lead to foreclosure, default, and damaged credit.
• High-earning professionals: Doctors, lawyers, dentists, and other specialized professionals have high incomes that would be difficult to replace. They also face occupation-specific risks that make own-occupation coverage particularly valuable.
• Workers in physically demanding jobs: Construction workers, nurses, tradespeople, and others whose jobs require physical activity face a higher risk of disabling injuries.

Who May Not Need Disability Insurance

While disability insurance is valuable for most working people, there are situations where it may not be necessary:

• Fully retired individuals: If you are no longer earning income and living on retirement savings, Social Security retirement benefits, or pensions, disability insurance serves no purpose since there is no earned income to replace.
• Near-retirement with substantial savings: If you are close to retirement and have enough savings to cover your expenses for the remaining years, the cost of disability premiums may not be justified.
• Financially independent individuals: If your investments and passive income can sustain your lifestyle without any earned income, you are essentially self-insured against disability.

Understanding the Real Risk of Disability

Many people underestimate their risk of becoming disabled. The Social Security Administration reports that more than 1 in 4 of today's 20-year-olds will become disabled before reaching age 67. That is a significant probability for an event that could wipe out years of income.

Disability does not just mean a catastrophic accident. The most common causes of long-term disability claims are musculoskeletal disorders like chronic back pain, cancer, cardiovascular conditions, and mental health disorders including depression and anxiety. These are conditions that can affect anyone, regardless of occupation or lifestyle.

Consider this: if you earn $60,000 per year and have 25 working years left, your remaining lifetime earnings would be $1.5 million, not counting raises or promotions. A disability that takes away even a fraction of those years represents a major financial loss. Disability insurance protects against that scenario.

Why Employer Coverage May Not Be Enough

If your employer offers group long-term disability insurance, that is a great starting point. But it is important to understand the limitations before assuming you are fully covered.

• Benefit cap: Most group LTD policies replace about 60 percent of base salary, often with a monthly maximum benefit of $5,000 to $10,000. If you earn a high income, the cap may leave a significant portion of your income unprotected.
• Taxable benefits: If your employer pays the premiums, the disability benefits you receive are taxable income. That means your actual take-home benefit could be closer to 40 or 45 percent of your salary after taxes.
• Definition of disability: Many group policies use own-occupation for the first 24 months and then switch to any-occupation, which makes it harder to qualify for ongoing benefits.
• Not portable: Group coverage typically ends when you leave your job. If you change employers or become self-employed, you lose that protection.
• Excluded income: Bonuses, commissions, overtime, and other variable compensation are usually not covered by group policies.

How Much Disability Insurance Costs

Private disability insurance typically costs between 1 and 3 percent of your annual gross income. The exact cost depends on several factors, including your age, health, occupation, the benefit amount, the elimination period, and the benefit period.

Here is a rough example. If you earn $60,000 per year, a disability policy might cost $600 to $1,800 per year, or roughly $50 to $150 per month. In return, that policy could replace $3,000 to $3,500 per month of income if you become disabled. Compared to the income you are protecting, the cost is relatively small.

Group coverage through an employer is usually less expensive because the employer subsidizes part of the cost or negotiates group rates. Even if your employer does not pay the full premium, group rates are often a good deal. However, remember the tax implications: if your employer pays the premium, your benefits are taxable.

A Decision Framework for Disability Insurance

To decide whether you need disability insurance, ask yourself these questions:

• Could my household pay its bills for 6 months or longer without my income?
• Would $1,630 per month from SSDI cover my essential expenses?
• Do I have other income sources like a spouse's salary, rental income, or investment income that could fill the gap?
• Do I have financial obligations like a mortgage, student loans, or dependents that require ongoing income?
• Am I more than 10 years from retirement?

If you answered yes to most of these questions, disability insurance is likely a sound investment. The further you are from retirement and the more people depend on your income, the more important this coverage becomes.

Next Steps: Getting the Right Coverage

If you have decided that disability insurance makes sense for you, the next step is understanding the details. Start with our guide on what disability insurance is and how it works to learn about short-term vs. long-term coverage, elimination periods, and policy definitions.

Then use our disability insurance calculator guide to figure out how much coverage you need. If you are wondering whether SSDI is enough on its own, our SSDI vs. private disability insurance comparison breaks down the differences side by side.

Disability insurance is one of the most overlooked types of financial protection. For most working people, it deserves as much consideration as health insurance, life insurance, and retirement savings. The cost of a policy is small compared to the income it protects.