Disability Insurance Calculator

How Much Disability Insurance?

Calculating the amount of disability insurance someone needs is a somewhat detailed process. To provide this estimate, our calculator needs a total of fifteen inputs:

  • The user’s annual income, which is used if group disability insurance is offered via an employer
  • Any group disability owned by the user, and the percentage of their income covered by this group policy
  • If the group policy has a maximum benefit per month, the calculator needs this value
  • Another potential source of disability income is government aid, such as Social Security in the United States
  • Finally, any other potential source of monthly income can also be used to lower the insurance requirement
  • The next section of inputs has to do with monthly expenses such as mortgage payments or rents on a home
  • This is followed by several other possible sources of monthly expenses such as childcare, car loans, personal loans, utilities, homeowners and other insurance, credit card loans, household expenses, and food / groceries
  • The calculator also provides the opportunity to supply a monthly expense such as saving for retirement or college

The calculator then delivers to the user with the following values:

  • The amount of monthly group insurance provided by, or through, their employer
  • A total of all monthly income sources, including group insurance, government programs such as Social Security, and any other income source
  • The total of all monthly expenses entered earlier by the user
  • Any disability income gap, which is the amount of insurance, or additional insurance, required each month

Supplemental Disability Income

Purchasing an individual disability insurance policy is a good practice for anyone that doesn’t receive adequate disability insurance through their employer. Individuals looking to protect their families from the potential loss of income may also purchase a policy to obtain additional coverage. One of the advantages of purchasing disability insurance on your own is the policy will stay with you even if you decide to leave your employer.

In addition to government sponsored programs, such as Social Security and state disability income (SDI) in the United States, employers may also offer group policies that replace a fixed percentage of the insured’s annual income. For example, an employee earning 120,000 per year choosing to replace 50% of their income would receive payments of 5,000 per month.

Using the Calculator

As is the case with many of the online tools we provide, this calculator can be used in one or more ways, with the two most common approaches being:

Disability Income Gap

This method is often used when purchasing an individual policy and the user needs to understand the disability income gap they need to close. When using the calculator this way, the user would not be required to enter their annual income, group disability percentage, and maximum benefit. These values can all be set to zero. The only inputs would be potential sources of monthly income and expenses.

Group Insurance Percentage

The user would select this method when group insurance is offered by their employer, and they would like to understand the percentage of their annual income that needs to be replaced to eliminate any disability income gap. After filling in all other inputs, the user can adjust the group disability income value to reduce the disability income gap to zero.

Purchasing Disability Insurance

Most disability insurance policies are structured to replace between 40 and 60% of the policyholder’s income on a before or after-tax basis. When comparing offerings, it’s important to take note of the features offered through each insurance contract, including:

  • Policy renewal provisions, which will indicate the flexibility the policyholder has to renew their policy
  • Payment entitlements, which are the circumstances that govern when the policyholder is entitled to receive full benefits
  • Residual benefits, which are the circumstances that allow the policyholder to receive partial benefits