Why Disability Insurance Doesn’t Pay 100% of Income

Shawn Plummer

CEO, The Annuity Expert

Why Disability Insurance Doesn’t Pay 100% of Income

Disability insurance typically doesn’t cover 100% of a person’s pre-disability income for several key reasons:

1. Incentive to Return to Work

  • Work Incentive: If disability benefits were to match 100% of a person’s salary, there might be less motivation for the individual to return to work once they can.
  • Balancing Act: Insurance is designed to provide necessary financial support while still encouraging a return to employment when possible.

2. Fraud Prevention

  • Reducing Fraud: Capping benefits at 60-65% of income helps deter fraudulent claims. If full income were replaced, it could potentially incentivize dishonesty regarding the ability to work.
  • Risk Management: Insurance companies implement these caps as a risk management strategy.

3. Alignment with Take-Home Pay

  • After-Tax Income: The 60-65% benefit range often closely approximates the actual take-home pay of individuals after taxes, considering that disability benefits are typically tax-free.
  • Net Income Replacement: This percentage aims to replace the net, not the gross income, providing a realistic sustenance level.

Maximizing Disability Benefits

For those seeking to maximize their disability coverage:

  1. Traditional Disability Market:
    • Primary Coverage: Start with companies like Assurity, MassMutual, and Illinois Mutual to secure the foundational disability coverage.
    • Benefit Limits: These companies generally offer coverage up to 60-65% of your income.
  2. Substandard Market:
    • Additional Coverage: If the traditional market doesn’t provide sufficient coverage for your needs, consider exploring the substandard market.
    • Supplemental Benefits: This can add an extra 10% in benefits, helping bridge any gaps.
  3. Personalized Coverage:
    • Tailoring to Income: Ensure that your coverage is tailored to your specific income level and financial needs.
    • Consider Future Income Changes: Remember potential future income increases and how they might affect your coverage needs.


Disability insurance typically caps benefits at 60-65% of pre-disability income to maintain incentives to return to work, prevent fraud, and align with after-tax income levels. To ensure adequate coverage, individuals should consider maximizing benefits through traditional insurers and then exploring additional coverage in the substandard market if necessary.

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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