Disability Income Insurance

What Is Disability Income Insurance?

As its name suggests, disability income insurance is a type of insurance product that provides income in the event that a policyholder is prevented from working and earning an income due to a disability.

In the United States, individuals can obtain disability income insurance from the government through the Social Security System. They can also purchase disability income insurance from private insurers.

KEY TAKEAWAYS

• Disability income insurance is a type of insurance protecting against loss of income due to disability.
• It is available through both public and private programs.
• Some of the variables affecting the cost of disability income insurance include the strictness of requirements for qualifying under the plans, the length of time in which benefits are paid, and the length of time policyholders must wait before beginning to collect those benefits.

How Disability Income Insurance Works

Oftentimes, insurance products will protect against a specific loss, such as when a property and casualty insurance plan reimburses the policyholder for the value of stolen property. In the case of disability income insurance, however, this compensation relates to the lost income caused by a disability. For example, if a worker earned $50,000 per year prior to becoming disabled, and if their disability prevents them from continuing to work, their disability income insurance would compensate them for a portion of their lost income provided that they qualify. In this sense, disability income insurance essentially covers the opportunity cost of the now-disabled worker.