Your earning power is the asset funding everything else.
Every contribution, premium and savings target in the plan assumes the paychecks keep arriving. Disability planning tests that assumption.
Households insure the house and the cars without hesitation, then leave uninsured the asset that pays for both. For someone in their thirties or forties, the present value of future earnings is usually the largest thing on the balance sheet, and it is the one that stops if they cannot work.
of today's 20-year-olds will become disabled before reaching age 671
average Social Security disabled-worker benefit, early 20252
of base pay is a typical group long-term disability replacement rate, often taxable3
The probability is not small
The Social Security Administration’s own materials state that just over one in four of today’s 20-year-olds will become disabled before reaching age 67.1 That is a population statistic and says nothing about any individual, but it is a very different number from the one most people carry in their heads when they decline coverage.
What Social Security disability actually pays
Social Security Disability Insurance is a floor, not a replacement. As of early 2025 the average monthly benefit for a disabled worker was roughly $1,580.2 Qualifying requires meeting SSA’s strict definition of disability, an inability to engage in substantial gainful activity expected to last at least twelve months or result in death, and there is a five-month waiting period before benefits begin.
For a household whose plan assumes a professional income, a benefit at that level does not fund the plan. It funds part of the groceries.
Read the group policy before you rely on it
Employer long-term disability plans commonly replace around 60% of base pay.3 Four details usually matter more than the headline percentage:
- Taxation. When the employer pays the premium and does not include it in your income, benefits are generally taxable to you, so 60% of pay is materially less than 60% of take-home.
- Definition of disability. “Own occupation” and “any occupation” are different contracts, and many group policies switch from the first to the second after two years.
- Covered compensation. Bonus, commission and K-1 income are frequently excluded, which matters most for the people whose income is mostly bonus, commission or K-1.
- Portability. Group coverage generally ends with employment. Individual coverage does not.
Where individual coverage fits
Individual coverage is used to close the gap the group plan leaves: the excluded compensation, the tax drag, the definition, and the years after a job change. Because individually owned policies are generally paid with after-tax dollars, benefits are generally received income-tax free, which is why the two layers have to be modeled together rather than added together.
Underwriting is medical and occupational. As with life coverage, price and eligibility are functions of age and health at application.
Disability is the assumption test for the whole plan. Retirement funding, education funding and insurance premiums are all financed by earned income; if the income stops, the plan stops with it. We model the household’s cash flow with the earner disabled, then size coverage to the shortfall the plan cannot absorb.
- Social Security Administration, Disability Facts: "just over 1 in 4 of today's 20 year-olds will become disabled before reaching age 67." View source ↗
- Social Security Administration, Monthly Statistical Snapshot: average monthly benefit for disabled workers, early 2025. View source ↗
- Typical group long-term disability replacement rates and the taxability of employer-paid benefits; see IRS Publication 525, Taxable and Nontaxable Income (sickness and injury benefits). Your own plan document governs. View source ↗
Figures are as of the period stated by each source and are subject to change. Statistics describe populations and are presented for education only; they are not a projection of any individual result.
Insurance products are offered through licensed insurance professionals and are not investment advisory services. Product guarantees are subject to the claims-paying ability of the issuing insurance company. Availability, underwriting outcomes, pricing and contract provisions vary by carrier, state and applicant, and no coverage is in force until a policy is issued and delivered. Other Side Asset Management does not provide legal or tax advice.
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