Man with disability getting walking therapy with help.

The individual need for Disability Insurance

Provided by
Man with disability getting walking therapy with help.

Individual Disability Insurance is a viable option instead of employer group disability or Social Security.

Many people believe that their biggest asset is their home. For most of us, our biggest asset is the ability to work and earn an income. Not being able to work – due to a job loss or a disability having taken away the ability to work – is often financially devastating.

Everyone who works for a living is familiar with what can happen if they lose their job. On the other hand, the possibility of a serious disability is a risk few seem to consider. How likely is that you will become seriously disabled? According to one study, 30% of all Americans between the ages of 35 and 65 suffered a disability lasting at least 90 days.1 The risk is real. The question is, "What to do about it?"

Don't count on Social Security

A few individuals do manage to qualify for disability benefits from Social Security. However, the Social Security definition of "disability" is so strict that, in 2020, only 33.8% of initial worker claims for Social Security disability benefits were accepted.2 Obviously, something else beyond Social Security is needed.

Group Disability Insurance

Many employers will provide – or make available – disability insurance on a group basis. However, even those who are covered by a group policy can still be at substantial risk. Employer-sponsored disability policies seldom replace more than 60% of your monthly salary. Further, many policies have a monthly maximum benefit that may be far less than what some people earn. Income taxes can also be an issue; if the employer is paying the full cost of the coverage, and not including it in the employee's income, disability benefits are fully taxable. If an employee pays for disability insurance with after-tax dollars, the benefits are received free of income tax.3

Individual Disability Income Insurance

If group coverage is not available, the solution may be individual disability income insurance. Although individual policies can cost more, as long as you pay the premiums with after-tax dollars, the benefits are not taxable. Plus, an individual policy allows you to tailor its terms to fit your own needs. When shopping for an individual disability policy, consider the following:

  • Company strength: You need to know if the company is financially sound.
  • Definition of disability: Look for a policy that defines disability in the broadest terms possible. Some policies will permit you to work in a different occupation and still collect disability benefits.
  • Elimination period: How long must you wait before disability payments begin?
  • Benefit period: How long will you need coverage? Both short-term and long-term disability benefits are available.
  • Inflation protection: Try to find a policy that adjusts benefits for inflation.

1 Based upon the 1985 Commissioners' Individual Disability Table.
2 Annual Statistical Report on the Social Security Disability Insurance Program, 2021, October 2022. Table 61, Medical Decisions at the initial adjudicative level, by year of application and program, all decisions; workers in 2020.
3 The discussion here concerns federal income tax law only. State or local law may vary.

These materials were reproduced with the permission of Advisys, Inc. No State Farm® entity prepared these materials nor does State Farm represent or warranty the opinions or statements expressed therein. These materials are being provided for information purposes only.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

Start a quote

Select a product to start a quote.

Find agents near
you or contact us

There’s one ready to offer personalized service to fit your specific needs.

Related articles

Benefits of disability insurance

Learn how disability insurance helps protect against the unexpected.

The individual need for Disability Insurance

Individual Disability Insurance is a viable option instead of employer group disability or Social Security.

Get the facts about disability insurance

Understand your coverage options before the unexpected happens.

What is Individual Disability Income Insurance?

There are many factors to take into account when considering an Individual Disability Income Policy.