9 Must-Know Types of Disability Insurance to Protect Your Paycheck

If an injury or illness prevents you from working, you don’t want to be left without sufficient income protection to cover your bills and day-to-day living expenses. The two main types of disability insurance — short-term and long-term — can replace a portion of your income for a couple of months up to retirement age (depending on the policy). But other potential financial safety nets might factor into the equation when determining what level of disability coverage you need.

Main types of disability insurance

Disability insurance is available through a few primary avenues: your employer, a professional association, or an insurance agency or broker.

1. Short-term disability insurance

Main purpose: Provides income protection for temporary medical conditions.

Short-term disability (STD) insurance can act as financial first aid in times of need. It covers up to 60% of your pre-disability income and is designed for short-term injuries and illnesses lasting up to a year.

Your employer might offer this type of disability insurance for free or at a discount. But if you have to pay out-of-pocket for a short-term disability policy, it might not be worth the cost if you can confidently live off your savings for three to six months.

2. Long-term disability insurance

Main purpose: Serves as income replacement for disabilities that last for an extended period of time.

When life takes an unexpected turn, long-term disability (LTD) insurance can replace a portion of your income anywhere from one year through traditional retirement age. But LTD policies aren’t a straightforward financial product, as there are many variations of coverage.

One major policy detail to be aware of is the definition of disability.

• Any-occupation coverage. This is a standard LTD policy that only pays disability insurance benefits if your injury or illness prevents you from working any job.
• Own-occupation coverage. This type of disability insurance is best for high-income professionals with specialized training, as the policy will be designed for your career’s unique risks. That said, there are also varying levels of coverage within this category. For example, a true own-occupation definition of disability will allow you to collect disability benefits if you can’t work in your specialty, even if you choose to work in another profession.

Consider adding optional catastrophic, residual, and student loan riders to your policy for even more protection. 

• Catastrophic disability rider. An additional payment you get every month if your disability prevents you from performing the essential tasks of life (like bathing, dressing or feeding yourself). You can use the extra money to hire someone or pay a relative to help take care of you. 
• Residual disability rider. It kicks in if your disability causes you to lose part, but not all, of your income. For instance, if you’re too tired to work on Tuesday after chemotherapy on Monday, you could get a portion of your disability benefits.
• Student loan rider. This is exactly what it sounds like — an additional monthly payment to use towards your student loans.

To get a quick quote for own-occupation disability insurance, fill out the form below and our team will work with you to find the right disability policy with the biggest discount available.

3. Group disability insurance

Main purpose: Provides affordable coverage through an employer or professional organization.

Many employers offer long-term disability insurance as part of their overall employee benefits package at no cost, which is a great perk. After all, some coverage is better than none. But many people mistakenly rely on their employer-sponsored group disability plan for complete protection from the unknown.

Group disability insurance can be significantly cheaper than an individual disability policy. But group policies often have limited benefits. For example, policies typically don’t have coverage for a partial disability, and the strict definition of disability makes it harder to qualify for benefits. Plus, disability income from a group plan is usually considered taxable income, so you might come up short when trying to cover your expenses while simultaneously paying Uncle Sam.

4. Supplemental disability insurance

Main purpose: Adds protection to balance your existing coverage.

A supplemental disability insurance policy can provide an extra security blanket by filling any gaps in your existing coverage. For example, if you only have group LTD coverage through your employer, you can supplement your coverage by purchasing an individual policy to get more disability benefits, extend your benefit period or add policy riders that don’t typically come with a group policy.

Government-sponsored disability insurance

Government-sponsored disability insurance programs can provide basic income protection if you become disabled. However, federal and state disability programs have limited benefits and are generally more difficult to qualify for.

5. Social Security disability insurance

Main purpose: Provides monthly payments if you’re totally disabled

The federal government provides Social Security disability insurance (SSDI) benefits to people with disabilities and enough work history to qualify. However, Social Security has a very strict definition of disability, and the application and processing times can be painful when you’re already under duress.

Additionally, the monthly payout is a fraction of what you’ll find with a personal disability insurance policy.

Looking at January 2024 data from the Social Security Administration, the average monthly benefit for disabled workers is $1,537.03. For those who qualify for supplemental security income (SSI), the average disability payment is an additional $697.89.

Therefore, Social Security disability benefits should be viewed as a fail-safe, not as the front-line defense in case you can’t work for an extended amount of time.

6. State disability insurance

Main purpose: Provides disability benefits for nonwork-related injuries or illnesses.

Only a handful of states (or U.S. territories) provide temporary disability benefits, including:

• California
• Hawaii
• New Jersey
• New York
• Rhode Island
• Puerto Rick

If you have access to a state-sponsored disability program, it can be a local lifeline for additional disability income.

7. Workers’ compensation

Main purpose: Covers your income and medical care if you’re hurt on the job.

Workers’ comp only pays out if your injury or illness directly results from your job, meaning you won’t be covered if you’re off the clock or engaging in non-work-related duties. But this type of disability insurance is the employer's responsibility and varies widely by state.

For example, Texas doesn’t require most private employers to have workers’ compensation, unless contracting with a government entity. In contrast, all California employers (regardless of size) are required to have workers’ compensation insurance.

Other types of disability insurance

When shopping around for disability insurance options, you might come across terms that suggest different types of disability insurance. But these terms often describe specific policy riders, not separate policy types. For instance, we recently highlighted future purchase option (FPO) disability insurance. This feature allows policyholders to increase their coverage later without needing another medical exam. 

But FPO isn’t a standalone type of disability insurance — it’s an optional policy rider that can be included in a policy.

So, while disability insurance resources (like ours) will reference the policy rider to provide a deeper understanding, it’s essential to remember that these are not separate categories of disability insurance. Instead, they are elements you can add to a long-term disability policy to customize the coverage to fit your situation and future insurance needs.

Additionally, other types of disability insurance can provide specific coverage needs.

8. Mortgage disability insurance

Main purpose: Protects your home by covering your mortgage payments.

Mortgage disability insurance can keep your home secure when you’re most vulnerable. It can be purchased as a stand-alone policy or as a mortgage protection insurance (MPI) policy rider, allowing for broader coverage in the event of death or disability.

But mortgage disability insurance only covers the cost of your mortgage payment, not other home-related expenses. So, most people will benefit more from having enough disability insurance to provide adequate protection for housing and living expenses.

Note that this type of disability insurance is not the same as private mortgage insurance (PMI).

9. Business overhead expense insurance

Main purpose: Covers the cost of running your practice or other business.

Business overhead expense insurance can serve as a buffer if you’re out of work due to an injury or illness. It can help keep the lights on by covering routine business expenses, such as employee wages, rent, debt and other office-related expenses. However, it won’t cover your salary (or other business owner salaries) or personal expenses — as this is what personal disability insurance is designed for.

Note that this type of disability insurance might not be necessary if your business or practice can run normally in your absence.

What type of disability insurance do you need?

Deciding on disability insurance is more than just picking a policy or hoping for the best with your workplace benefits. You need to comprehensively review exactly what you’re eligible for with your existing coverage — everything from your benefit amount to your benefit period and elimination period to the policy’s definition of disability. Then, you can identify gaps in coverage to ensure you and your family will be adequately covered in the future.

SLP Insurance can take the guesswork out of figuring out which type of disability insurance you need. Let our team review your existing coverage to match you with a policy that fits your needs and at the best price—or we’ll refer you to another broker if we know of a better deal.

Fill out the form below to get started.