Understanding Life and Disability Insurance

• Life insurance and disability insurance serve different purposes. Life insurance protects your loved ones if you pass away, while disability insurance replaces income if you can’t work.
• Having both types of policies gives your family and finances steady protection, both now and in the future.
• Disability is statistically more common than premature death, making it a key part of financial planning. More than 1 in 4 adults (28%) in the United States have some type of disability.*
• Combining both types of coverage offers a more complete safety net than either policy alone.

Life and disability insurance are designed to protect different parts of your financial life, but they work best when they work together. Life insurance helps your family stay financially stable if you pass away. Disability insurance protects your income if you can’t work because of an illness or injury. It's sometimes referred to as disability income insurance for that reason. 

Many people assume life insurance alone is enough, but the reality is that the odds of becoming disabled during your working years are much higher than the odds of dying young. Having both means your family’s immediate expenses and your long-term goals remain secure no matter what happens.

Do I Need Disability Income Insurance If I Already Have Life Insurance?

Yes, because life insurance doesn’t help if you’re alive but unable to earn income. Disability coverage fills that gap by replacing a portion of your income (usually 50% to 70%) so you can continue paying bills, maintaining your savings, and protecting your lifestyle. Together, these two types of coverage form a complete financial plan: one supports your loved ones if you’re gone, the other supports you while you’re here.

While some life insurance policies include accelerated death benefit riders that let you access funds if you’re diagnosed with a qualifying illness or condition, they’re not a substitute for disability income insurance. These riders are designed to provide a one-time payment from your death benefit, not ongoing income replacement.

Read: Is Life Insurance Worth It?

Life insurance provides a financial cushion for your loved ones if you pass away. It replaces the income you would have earned, helping your family cover essential expenses like mortgage payments, tuition, and daily living costs. Permanent policies also build cash value over time, which can be accessed later for emergencies or financial planning.

There are two main types of life insurance:

• Term life insurance: Covers you for a set period, typically 10 to 30 years, and pays a death benefit if you pass away during that time. It’s generally the most affordable option and a practical fit for young families or people with large financial responsibilities.
• Permanent life insurance: Lasts your entire life as long as premiums are paid. These policies can include several variations of whole life insurance and universal life insurance, offering lifelong coverage and potential cash value growth.

Life insurance provides financial protection for your family and peace of mind for you. Knowing your loved ones would be financially secure if the unexpected happens can make it easier to plan confidently for the future.

Disability income insurance acts as income protection if an illness or injury prevents you from working. Instead of leaving you without a paycheck, it replaces part of your lost income (typically between 50% and 70%) until you can return to work or reach the policy’s benefit period limit.

There are two main types of disability insurance:

• Short-term disability: Usually covers three to six months of lost income. It’s meant for temporary situations, such as recovery after surgery or a short-term illness.
• Long-term disability: Designed for more serious or long-lasting health conditions. Coverage can last for several years or even until retirement, depending on your policy.

Many employers offer group disability insurance, but coverage amounts are often limited. If you’re self-employed or rely heavily on your income, a supplemental individual policy can help fill those gaps and provide stronger protection.

Disability insurance keeps your financial plan on track even when your ability to earn is disrupted and helps you cover daily expenses, maintain savings goals, and protect your family’s standard of living.

Read: What Factors Impact the Cost of Your Life Insurance Premium?

Life and disability protection are often thought of separately, but together they can create a full circle of protection. Life insurance safeguards your family’s long-term financial stability if you pass away, while disability insurance safeguards your income stream if you can’t work due to illness or injury.

Think of it this way: a disability policy keeps your financial goals alive while you’re living, and a life insurance policy ensures those goals are met after you’re gone. When both are in place, you’re protected financially whether your income stops temporarily or permanently.

For example, a family that relies on one person’s income could use disability benefits to stay on top of bills during recovery, while life insurance ensures loved ones can maintain that same security if the worst were to happen. Together, the two cover both income replacement and family protection, which are the cornerstones of a strong financial plan.

Read: How to Calculate Cash Surrender Value of Life Insurance

The right amount of life insurance coverage depends on your income, financial obligations, and long-term goals. The goal is to provide enough to replace your income, pay off debts, and help your family maintain their standard of living. Our coverage calculator can help you figure out the amount that’s best for you.

For disability coverage, a good target is coverage that replaces about 60% of your gross income, which is usually enough to manage essential expenses while you recover. If you receive group disability coverage through work, it’s worth checking whether the benefit is taxable, as that affects your actual take-home amount.

Regularly review both your life and disability coverage as your career and lifestyle evolve. A growing family, new mortgage, or higher income can all signal it’s time to adjust your protection to make sure it still fits your needs.

Some life insurance companies offer riders and policy features that are designed to connect life and disability protection more closely, offering extra flexibility when your situation changes. These riders can help protect your income and your family at the same time:

• Waiver of premium rider: Available on many life insurance policies, this feature waives your premiums if you become disabled and can’t work, keeping your coverage active during your recovery.
• Disability income rider: Added to a life insurance policy, this rider pays a monthly benefit if you’re unable to work due to illness or injury—helping to bridge the gap between life and disability coverage.
• Accelerated death benefit rider: This allows you to access a portion of your life insurance death benefit if you’re diagnosed with a qualifying illness, providing funds for medical or household expenses while you’re still living.

While riders come with an extra cost, they can make your overall protection more cohesive, helping you maintain both income security and family coverage under one plan.

Read: What Disqualifies Life Insurance Payout

Common Mistakes to Avoid

Even well-intentioned planners sometimes overlook important details when managing life and disability coverage. Avoiding these common mistakes can help you stay better protected:

• Relying only on employer benefits: Workplace life and disability insurance are convenient, but coverage often ends if you change jobs and may not be enough on its own.
• Underestimating living expenses: Many people buy life insurance that covers only debts, not ongoing costs like childcare, tuition, or retirement contributions.
• Skipping disability insurance entirely: Disability is more common than most people realize. Without coverage, even a short-term loss of income can quickly derail your financial stability.
• Not reviewing coverage regularly: Major life changes like a new job, marriage, children, or taking on a new mortgage can all shift your protection needs.
• Overlooking life insurance policy riders: Features like premium waivers or income riders can help bridge gaps, especially if your budget limits how much separate coverage you can buy.

Regular check-ins with your financial advisor or insurance provider can help ensure both policies stay aligned with your goals.