I’m a financial planner, and I have a simple guideline to figure out who needs disability insurance


I’ll be honest with you: I don’t love most insurance.

Insurance policies can be extremely expensive, and they all represent something you might need to have but hope never to use – because if you need it, something probably went wrong.

Take life insurance, for example. You might need it … but if you have to use it, it means you’re no longer with us. And most of us can agree that’s not an ideal outcome.

As much as I don’t love insurance, the appropriate policy for you may help protect yourself, your assets, or your loved ones – or, in the case of disability insurance, possibly all three.

What’s the purpose of disability insurance?

If you were to experience an accident, injury, or health issue that made it impossible for you to continue working, disability insurance could protect you against a loss of an income despite the inability to earn money.

When you’re in your working years, your income is probably the most valuable asset to your name. After all, you need to earn money in order to have the cash to save and invest to meet goals and build financial security or reach complete financial independence.

Take away your ability to earn an income, and the ability to fund your life now or in the future goes with it. This is where disability insurance comes into play.

If you experienced a disability, a disability insurance policy would provide you a monthly income for a set period of time. The amount you receive and for how long depends on the details of your current earnings, the policy you receive, and how much coverage you choose to get.

Policygenius can help compare disability insurance policies to find the right coverage for you, at the right price »

The golden rule for who needs disability insurance

Life insurance is designed to protect people in your life who may financially depend on you; it’s for those who would face a financial hardship if anything happened to you.

Disability insurance is a little different in that it primarily protects you. If you couldn’t work and earn a paycheck, you’d have your disability policy to provide you with an income stream.

But that, in turn, could also help protect others in your life like a spouse if you’re part of a dual-income household and rely on your financial contribution to pay expenses and meet savings goals. It can also protect your children, because it means money continues to flow into your household even if you can’t work.

So if you have a job earning income, then you probably need some amount of disability insurance to protect that asset: your ability to generate positive cash flow.

How much disability, what type (short-term versus long-term, or both), and when the benefit kicks in all depend on the unique and specific factors of your financial life, goals, and needs.

Where to get coverage

A good first step for getting disability insurance is to check with your employer or your HR department. Many companies offer group insurance policies that you can buy into for a fraction of the cost of a private policy that you need to buy on your own.

But employer plans are usually quite limited, and may not be sufficient for your needs. And if you’re self-employed? You definitely need to look into protecting yourself with your own policy.

If you feel you need more insurance than what you can get through your employer’s plan (or you are your employer), you might want to talk to a fee-only financial planner.

These professionals cannot sell you insurance because they don’t sell products – which is why they’re a good resource to use first. They have no financial incentive for selling you more insurance than you need, and they can provide you with a comprehensive, holistic financial plan that takes your whole financial picture into account.

From there, they can help you identify where there might be gaps in your current coverage (or confirm that what you have is sufficient), and most planners will also be able to connect you with a contact they trust who can help you get a private policy if you need it.

Policygenius can help compare disability insurance policies to find the right coverage for you, at the right price »

Eric Roberge, CFP, is the founder of Beyond Your Hammock.