Man with an injury looking at his disability insurance benefits on his phone

Get the facts about disability insurance

Understand your coverage options before the unexpected happens.

Most people never anticipate becoming disabled. But today’s 20-year-olds have a 1-in-4 chance of missing at least a year of work due to disability before they reach retirement age, according to the Council for Disability Awareness. In addition, while many think their chances of becoming disabled are slim, the reality is that 26% of adult Americans live with disabilities. Disability and family finances are inherently intertwined.

The causes of disability are as diverse as its duration: short term for an injury that requires a hospital stay, for example, or long term for recovery from an accident or debilitating illness. Whatever the cause or length, a disability has the potential to negatively impact the finances of any family. Here’s what you need to know about the financial impact of disabilities — and what you can do to protect yourself.

What is disability insurance?

Disability insurance is coverage that replaces part of an employee's income when they are unable to work due to an illness or disabling injury. Disability insurance provides benefits that cover on average up to 60% of an employee's salary.

How does disability insurance work?

Usually disability insurance is an agreement between you (the policyholder) and an insurance company. You make monthly payments and in the case that you suffer a disability that causes you to not work, the insurance company agrees to pay you a monthly amount. The policy will explain details like the monthly premium, what is covered and limitations (like performing other types of work), the monthly benefit amount and the length of the benefit.

Types of disability insurance

There are two basic types of policies: short term disability and long term disability.

  • Short term disability insurance: As the name implies, this type of policy makes up for lost income for six months or less. It typically kicks in after you’ve exhausted other workplace benefits like paid time off and sick leave.
  • Long term disability insurance: If your disability lasts longer, you’ll need to move to long term disability. This policy pays a portion of your income, typically 50% to 80%, up to a maximum, for periods of a few years or until retirement, depending on the type of policy you have

Do you need disability insurance?

In an average year, about 5% of Americans will experience a short term disability of six months or less. Almost all of these disabilities are non-occupational in origin. Most Americans are nowhere near prepared to face a year without paychecks. According to a study by the Federal Reserve, 35% of U.S. adults couldn’t cover an emergency expense of just $400 without going into debt, borrowing from friends or family or selling off possessions.

Disability and income

Bankruptcy due to medical bills

According to the Council for Disability Awareness, a study of consumer bankruptcy filings showed that more than 77.8% of people filing for bankruptcies cited losing their income as their reason for being bankrupt. And 44.3% of these people stated that they lost their income from work due medical reasons.

Social security disability

The Council for disability Awareness also states that a successful Social Security Disability Insurance claim can mean a long stretch without income, as claims generally take three to five months to be approved. For 2021, the average yearly benefit was $15,348 (well below the poverty line for a two-person household.) At least 51 million working American adults lack any disability insurance other than Social Security coverage.

Buy at work or on your own

Work-based disability insurance is convenient to purchase and can be quite reasonable in cost. The downside: The coverage may not be portable, and you may have to forfeit it if you change jobs. According to the U.S. Bureau of Labor Statistics, only 35% of civilian workers have access to long term disability coverage and only 40% have access to short term disability coverage.

An individual disability insurance policy may have more flexibility and give you more options. It stays in place no matter how often you change jobs, and you can choose the period of time you want coverage in place.

Not all policies are available in every state. Talk to your State Farm® about how to coordinate short and long term policies and protect your income.

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.

State Farm Mutual Automobile Insurance Company
Bloomington, IL

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