Disability Insurance

## Disability Insurance

Disability insurance protects income when an employee cannot work due to medical reasons. It is arguably the most undervalued employee benefit.

### Types

| Type | Waiting Period | Duration | Benefit |
|------|--------------|----------|--------|
| Short-term (STD) | 0–14 days | 3–6 months | 60–70% of salary |
| Long-term (LTD) | 90–180 days | To age 65 | 50–70% of salary |

### Why It Matters

The probability of a working-age adult becoming disabled for 90+ days is approximately 25% — far higher than the risk of death. Yet disability insurance is often overlooked.

### Tax Treatment

- **Employer-paid premiums**: Benefits are taxable to the employee when received.
- **Employee-paid premiums (after-tax)**: Benefits are tax-free.
- This distinction significantly affects the net benefit amount.

### Social Security Disability (US)

SSDI provides a safety net but requires a 5-month waiting period, strict medical criteria, and pays an average of ~$1,537/month (2024).