What Age Should You Drop Disability Insurance? The Importance of Timing and Other Financial Factors

Disability insurance acts as a financial safety net if you’re unable to work due to a long-term injury or medical condition. It protects your future earnings and education investment, both of which are the basis of your livelihood. But adequate disability insurance can cost several hundred dollars a month. With competing financial priorities, the question can quickly become: At what age should you drop disability insurance?

There are many factors to consider when deciding to cancel your disability coverage, including your age, career trajectory and individual risks. But the main one you should focus on is financial independence.

Whether you reach financial freedom in your 40s, 50s or traditional retirement age, the best age to drop your disability insurance is whatever age you become financially independent.

Benefits of disability insurance at different stages of life

Disability insurance can replace a large portion of your income if an injury or illness prevents you from working. Short-term disability typically covers disabilities that resolve within a year, such as pregnancy complications and non-work-related injuries. But long-term disability insurance (LTD) serves as income protection if you’ll be out of work for a longer period of time or permanently.

Most disability insurance companies allow you to purchase coverage for up to 60% of your monthly income. However, medical and dental residents can qualify for up to $5,000 in monthly disability insurance benefits, which might be closer to a 100% payout. Plus, you can add a future purchase option, allowing you to buy additional coverage without a medical exam as your salary increases.

This significant income replacement can support you in the early stages of your career when you have minimal savings and a negative net worth, thanks to a six-figure student loan balance. But it can also provide for your family as you get older and have more personal responsibilities later in your career.

Disability income can help cover your living expenses and maintain your lifestyle preferences during an otherwise financially uncertain time. It helps ensure you won’t lose your home and can pay for major costs, like childcare, healthcare and education expenses.

If your spouse and children are dependent on your income, disability insurance should be a priority in your financial plan at all stages of your career.

What to consider before dropping your disability insurance

Policyholders cancel disability insurance for a variety of reasons. Maybe you got a new job that provides group disability coverage, and you think it’ll be enough. Or maybe you can’t comfortably afford disability premiums anymore. Whatever your initial reason, you should carefully consider your full financial situation before dropping coverage.

Here are a few things to think about when making this important decision:

• Age. At what age should you drop disability insurance? There isn’t an age that automatically triggers canceling your disability policy. So, unless you’re nearing retirement age, you shouldn’t place too much emphasis on your age when deciding to drop coverage.
• Potential health changes. Do you have a medical condition that increases the likelihood of a disability? Consider your family history and lifestyle choices that might affect your health in the future.
• Career stability. If you’ll bounce around jobs early in your career, you don’t rely on an employer-sponsored disability policy since you’ll lose coverage when you leave. Instead, you’ll want to maintain a portable individual disability policy to follow wherever your career takes you.
• Professional risks. Are you in a profession with a higher risk of disability, such as a surgeon or other invasive medical specialty? Own-occupation coverage will provide the strongest income protection for your specialty income. 
• Financial situation. What debt and fixed expenses do you have? What are your future financial goals? Are you the breadwinner or sole provider for your family? Evaluate your current and future finances to assess whether you can support your family without the safety net of disability insurance.
• Alternative sources of income. What resources can you tap into? Do you have rental properties or a side hustle with a solid income stream? Does your spouse work, or could they return to the workforce if needed? Do you have a sufficient emergency fund or other savings to cover expenses? Consider all sources of income to determine how much disability insurance you need. 

Dropping your disability insurance isn’t a decision that you can easily reverse. So, you must consider all financial angles instead of just focusing on your age.

When it makes sense to drop disability insurance

If you’ve reached the financial freedom pinnacle and can now live off your assets, then you don’t really need disability insurance anymore. Even if you choose to continue working, you aren’t dependent on your earned income. Therefore, you can drop your disability policy without worry.

But it might make sense to cancel your policy in other scenarios, such as:

• You’re in your 60s. Most disability policies pay out benefits up to age 65, so you might benefit more by funneling your remaining premium payments to your savings or investments.
• Early retirement is right around the corner. If you’re in the final years of your career and can replace any loss of income with your own resources, canceling might be a viable option. But make sure you can immediately afford all expenses before moving forward.
• You receive a large inheritance. If a family member blesses you with a hefty financial windfall, it might be enough to serve as its own form of income protection with smart planning.

Financial independence is the ultimate marker that you no longer rely on working income. At that point, you’re self-insured and no longer need disability insurance coverage.

Alternative option: Modifying your policy

You should try to avoid dropping your disability insurance policy if you aren’t financially independent yet. But that doesn’t mean you don’t have options to lower your premiums or make adjustments. After all, your needs will change over time, especially over the course of a long medical or dental career.

For example, you might have paid off your student loans or mortgage — freeing you from major debt burdens. Alternatively, your family’s financial situation might have changed since you originally took out the policy as a resident. Maybe your children are grown and, therefore, aren’t dependent on your income. Or maybe your spouse has returned to the workforce after staying home with the littles, giving you another source of income. Maybe you’re on track to become debt-free and have dramatically reduced your spending or lifestyle goals.

Depending on your needs, you might be able to cancel certain disability insurance riders to lower your monthly premiums. For example, if your policy has a cost-of-living adjustment (COLA), you could cut back on costs by stopping your inflation protection.

But insurance companies can be a pain to deal with, so modifying your policy isn’t always cut and dry.

Our Founder, Travis, ran into this issue and ended up keeping his policy intact to avoid the hassle. In fact, he still carries his disability insurance policy because he isn’t financially independent as of yet. If you find this surprising, just keep in mind that lifestyle inflation is real.

Bottom line: Keep your disability coverage until you’re financially independent

Protect your specialty income for as long as you depend on your working income. The last thing you want to do is drop coverage prematurely and end up needing it or changing your mind in the future.

The Social Security Administration (SSA) estimates that about one-quarter of working adults will become disabled before retirement. But that’s based on a strict definition of disability. As a medical or dental professional with specialty training, you’re likely at a higher risk when you account for your specific job duties under an own-occupation policy. There’s a higher chance that you’ll use your disability policy than the average American worker.

Additionally, if you cancel your disability insurance and decide you want coverage at a later date, you’ll have to take another medical exam. In some cases, you might not be able to purchase a new policy again if you’re in poor health, depending on the extent of your medical condition. You’ll also pay higher premiums due to being older and potentially in worse health.

It’s best to hang onto your disability insurance until you’ve become financially independent or are retired and no longer working.

Want help evaluating your existing disability coverage? Fill out the form below, and the SLP Insurance team will reach out with the next steps.