Protecting Your Income and Business from the Unexpected

Employer-based long-term disability policies typically replace 60% of income² and may cap the dollar amount, which can pose a challenge for higher earners. A policy with a cap of $120,000 per year, for example, might not provide adequate income replacement for an individual accustomed to earning more. Also, some workplace disability insurance plans only count salary as income,³ so they wouldn’t replace additional income from commissions, bonuses or other sources. Private disability policies, in contrast, tend to offer more flexibility in terms of both the amount of income and types of income they’ll replace.

Private disability insurance has some other benefits as well. It’s portable, so you can keep it if you change jobs. Plus, most group policies through an employer would be pre-tax,³ meaning you would need to pay taxes if you receive disability benefits.  Since most private disability insurance policies are paid with after-tax dollars, you would receive those benefits tax-free. Additionally, if your employer doesn’t offer disability insurance, private disability insurance can help provide a basic safety net.

Business owners may also want to view disability insurance through a business continuity lens, not just personal income protection. If you are unable to work, business revenue may decline, particularly in practices where client relationships, sales activity or specialized expertise are concentrated in one person. At the same time, fixed operating expenses, such as rent, payroll, debt service, insurance premiums and vendor contracts, can typically continue even during a recovery period. Business owners should also consider any key-person dependencies whose absence could disrupt operations or delay growth. As a result, consider evaluating disability planning in two parts: personal income replacement and separate coverage. You can also consider planning designed to help keep the business running and meet ongoing overhead obligations during a disability.

For individuals: Your employer may offer short-term disability insurance, long-term disability insurance or both.⁴

• Short-term: Short-term disability coverage kicks in within a few weeks and covers lost wages over a period of three months to a year. If you have a fully funded emergency savings account, you may be able to skip this type of insurance.
• Long-term: Long-term disability insurance provides wage replacement for two years or more. It typically kicks in after an “elimination period” that’s, on average 90 days.

If you purchase a supplemental long-term disability insurance plan, carefully read the policy documents to understand the coverage it offers. Generally, there are two types:

• “Any occupation”: A policy with any occupation insurance coverage pays out only if you can’t work in any capacity.
• “Own occupation”: Policies that offer own occupation coverage pay out if you can’t perform the occupation in which you’re currently employed. This type of policy might make sense for those that work in highly specialized fields. If a surgeon has a hand injury and can no longer operate, for example, own occupation insurance would provide coverage, even if they could potentially perform other types of work. Some policies begin with own occupation coverage and transition to any occupation after a period.

For business owners: Consider a layered disability insurance strategy to protect both personal income and the enterprise itself. At a minimum, this includes:

• Individual disability income (DI) insurance to replace personal earnings.
• Business overhead expense (BOE) insurance to cover fixed operating costs during a disability, and disability buy-sell insurance to fund ownership transitions if a partner becomes disabled.
• Key person disability coverage is also critical where revenue depends heavily on one individual, helping offset financial disruption.

Together, these solutions ensure continuity, liquidity, and stability—protecting both the owner’s livelihood and the long-term viability of the business.

Even if you have disability insurance at work, there’s typically a waiting period of 14 days before short-term disability insurance kicks in, and 90 days for long-term disability insurance.⁴ Having an emergency fund will help you cover your bills in the interim.

Aim to have an emergency fund with enough money to cover three to six months’ worth of expenses. The amount you need in the account will vary depending on whether you have dependents (you may need more) or a spouse with a job (you may need less), or other sources you can ask for help (again, you’d need less).

Business owners may want to complement personal emergency savings with a dedicated business liquidity buffer—kept in highly liquid, low-volatility vehicles and sized to cover a defined period of core fixed obligations—so the business can bridge short-term disruptions such as delayed receivables or temporary revenue shortfalls without forcing rushed financing decisions.