Disability insurance (private or employer-provided) replaces part of your income when you cannot work due to illness or injury. Short-term plans cover brief absences; long-term plans begin after a waiting period and can pay for years or until retirement. Key differences include benefit percentages (commonly 50-70% of pre-disability earnings), elimination periods, and definitions such as own-occupation vs any-occupation. Tax treatment hinges on who pays premiums. Review policy terms carefully and consult a licensed agent.

What is disability insurance?

Disability insurance protects your income if an injury or illness prevents you from working. Private plans and employer-sponsored policies fill the gap between your lost wages and ongoing expenses. They work alongside public programs such as Social Security Disability Insurance (SSDI).

Types and typical durations

Short-term disability (STD)

Short-term disability usually replaces a portion of income for a limited period after an illness or accident. Typical benefit windows range from a few weeks to several months; some plans extend up to a year or more depending on the insurer.

Long-term disability (LTD)

Long-term disability covers longer absences, often beginning after the STD period or a specified waiting period. LTD policies can pay for several years, to retirement age, or for life in some contracts. Elimination periods and maximum benefit terms vary by plan. 1

How much will it pay?

Private disability policies generally replace a portion of your pre-disability income rather than the full amount. Common replacement ranges are roughly 50%-70% of earnings (many plans use around 60%); employer plans often cap benefits at a fixed dollar amount. Exact amounts and caps depend on the policy, your occupation, and your salary. 2

Waiting (elimination) periods

Most policies include an elimination period - the number of days between the disability event and when benefits begin. For STD this can be immediate or a few days; for LTD it often ranges from 30 to 180 days (some policies use 90 days as a standard). Longer elimination periods typically reduce premium cost. 3

Key policy features to compare

  • Own-occupation vs any-occupation: Own-occupation policies pay if you cannot perform your specific job. Any-occupation policies pay only if you cannot perform any reasonable job for which you are qualified.
  • Non-cancelable and guaranteed renewable: Non-cancelable means the insurer cannot raise your rate or cancel coverage (subject to premium payments). Guaranteed renewable generally prevents cancellation but allows rate changes by class.
  • Benefit offsets and integration: Employer plans may offset benefits by amounts from Social Security or employer sick-pay. Read exclusions and cost-of-living adjustments.

Tax treatment

Taxation depends on who pays the premium. If your employer pays premiums with pre-tax dollars, benefits are generally taxable. If you pay premiums with after-tax dollars, benefits are usually received tax-free. Check current IRS guidance for your situation. 4

How to choose

Match coverage to your income needs, job risk, and savings. Compare elimination periods, benefit percentages, definition of disability, offsets, and renewability. Consult a licensed insurance agent or financial adviser to review plan specifics and how private coverage interacts with SSDI and other benefits.

  1. Confirm typical short-term disability maximum durations across major U.S. insurers and employer plans.
  2. Verify commonly used replacement ratios (50%-70%) and whether 60% is the most typical figure for private/employer plans.
  3. Confirm standard elimination period ranges and the frequent use of a 90-day elimination period for long-term disability.
  4. Verify current IRS guidance on taxation of disability benefits depending on who pays premiums.
  5. Check SSDI timelines and eligibility descriptions to ensure accuracy for 2025.

FAQs about Disability Insurance Rate

What's the difference between short-term and long-term disability?
Short-term disability covers shorter absences (weeks to months) and typically starts quickly; long-term disability begins after a set waiting (elimination) period and can pay for years or until retirement, depending on the contract. Exact durations vary by insurer.
How much of my income will disability insurance replace?
Private and employer plans commonly replace roughly 50%-70% of pre-disability income (many plans use about 60%). Policies often cap benefits and may include offsets from other sources.
What is an elimination period?
An elimination period is the waiting time between the disabling event and when benefits start. Short-term policies can have brief or no elimination periods; long-term policies often use 30-180 days, with 90 days a common choice. Longer elimination periods usually lower premiums.
Are disability benefits taxable?
Tax treatment depends on who paid the premiums: benefits are generally taxable if your employer paid premiums with pre-tax dollars; benefits are usually tax-free if you paid premiums with after-tax dollars. Confirm with current IRS guidance and your tax advisor.
Should I rely only on Social Security Disability Insurance (SSDI)?
SSDI provides important federal support but has strict eligibility rules and application times. Many people use private disability insurance to get faster or broader income protection. Review eligibility, timelines, and benefit levels for SSDI and private plans.