Disability Insurance Needs Calculator
Calculate the disability insurance coverage you need. Combines monthly expenses, group long-term-disability (LTD) coverage, Social Security disability benefit offsets, and emergency-fund duration. Identifies the gap to fill with individual disability insurance (IDI). Most employees have only 50-60% gross income covered by group LTD — usually insufficient.
Why Group LTD Isn't Enough
Most employer-sponsored LTD covers 50-60% of gross income, capped at $5,000-$15,000/month. Benefits taxable as ordinary income (because employer-paid premiums). Net coverage: 35-45% of pre-disability income. Group LTD often has 'any-occupation' definition after 24 months — broader, harder to qualify. SSDI takes 5+ months wait + offsets group LTD dollar-for-dollar. Most professionals (doctors, lawyers, executives) need individual disability insurance (IDI) on top of group.
Own-Occupation vs Any-Occupation
Own-occupation — disabled if you can't perform your specific job, even if you could do another job. Most expensive but most generous. Critical for specialists (surgeons, dentists, attorneys) whose skills are job-specific. Modified own-occupation — covers your occupation but stops paying if you take ANY other paid work. Any-occupation — only pays if you can't work in ANY occupation suitable to your training/experience. Used in most group LTD after 24 months. IDI policies typically guarantee true own-occupation for the entire benefit period.
How Much Coverage
Target: 60-80% of gross income (carriers cap at 65-70%). Self-employed with no group LTD: 60-70% gross. Group LTD covers 60% gross: add 15-25% individual on top to reach 75-80% total. Calculation considers: (1) Monthly fixed expenses (mortgage, utilities, food, insurance). (2) Variable expenses. (3) Investment / savings contributions. (4) Tax: individually-paid premiums = tax-free benefits; employer-paid = taxable benefits. (5) Inflation rider (typically 3% COLA — adds 15-25% to premium).
Benefit Period and Waiting Period
Waiting period (elimination period): 30, 60, 90, 180, 365 days. Longer waiting = lower premium. Match to emergency fund — 6-month elimination requires 6+ months emergency fund. Benefit period: 2 years, 5 years, to age 65, or to age 70. Most should target to age 65 (covers working-life income loss). Lifetime benefits cost 50-100% more — usually unnecessary. Riders worth considering: residual disability (partial work), future-insurability (lock in coverage capacity without medical exam), automatic increase (annual indexation).
Sources: SSA Disability Statistics 2024, Council for Disability Awareness 2024 Long-Term Disability Claims Review, NAIC Disability Insurance Handbook. Last updated: May 2026. Not insurance advice.
Frequently Asked Questions
How much disability insurance do I need?
Target 60-80% of gross income total coverage. Carriers cap individual coverage at 65-70% gross. Self-employed with no group LTD: 60-70% gross. With group LTD: add individual on top to reach 75-80% total.
What is 'own-occupation' disability insurance?
Pays benefits if you can't perform your specific job, even if you could work elsewhere. Critical for specialists (surgeons, lawyers, dentists). Group LTD usually downgrades to 'any-occupation' after 24 months. Individual policies (IDI) typically guarantee true own-occupation throughout.
Why isn't my employer's group LTD enough?
Group LTD typically covers 50-60% gross income with a monthly cap ($5K-$15K). Benefits taxable as income (because employer-paid). Net effective coverage: 35-45% of pre-disability income — usually insufficient. Plus 'any-occupation' definition after 24 months limits long-term benefits.
Are disability insurance benefits taxable?
Depends on who paid the premium. Employer-paid premiums → benefits TAXABLE (most group LTD). Employee post-tax premiums → benefits TAX-FREE. Some plans let employees buy 'gross-up' option (pay premium with post-tax dollars to get tax-free benefits). Individual policies with own premiums = tax-free benefits.
What is the elimination period?
Waiting period before benefits start: 30, 60, 90, 180, 365 days. Longer wait = lower premium. Match to your emergency fund — 6-month elimination requires 6+ months emergency fund. 90 days is the standard recommendation; 180 if you have strong emergency reserves.