How it works
Disability income replacement analysis measures the monthly shortfall between the money that keeps arriving if you cannot work and the expenses that keep arriving regardless. Group long-term disability replaces a headline share of salary — commonly 60% — but employer-paid benefits are taxed when claimed, so sixty percent of gross lands closer to forty-five after withholding. Social Security Disability may add support, yet it pays modestly, imposes a five-month waiting period and denies most first applications, so any estimate deserves pessimism. The calculator nets benefit plus continuing household income plus realistic government support against essential monthly expenses; whatever cannot be covered is the gap. From the gap flow three figures that turn anxiety into a plan: the coverage ratio showing how much of life the policy actually funds, the lifetime shortfall accumulated to age sixty-five, and the lump sum that, invested conservatively today, would fill the entire gap — the honest price tag of being uninsured. That final number is why disability coverage outranks almost every other insurance purchase for working-age households: the probability of a long disability during a career materially exceeds the probability of dying young, yet the same family that owns life insurance often owns no disability cover at all.
Formula
monthly gap = expenses - (income x replacement % / 12 + other income + other benefits)
Tips
- Haircut the headline rate for taxes — employer-paid benefits are taxable, so 60% gross is ~45% in hand.
- Discount SSDI hard in your planning: five-month wait, strict definitions, most first claims denied.
- 'Own-occupation' wording is the clause that protects specialists; confirm it before buying individual cover.
- Keep any gap fund in safe assets — disability and market crashes tend to arrive together.
- Re-check the gap after every raise; benefits are frozen percentages while expenses grow with your life.
Frequently asked questions
- How much disability insurance do I need?
- Enough to close the monthly gap between post-tax benefits and essential expenses, sustained to age 65. Most households discover group cover alone leaves a real gap once taxes are applied — the calculator quantifies it, then prices the lump sum that would close it outright.
- Are disability benefits taxable?
- It depends who paid the premium. Benefits from an employer-paid group policy are fully taxable; benefits from a policy you bought with after-tax dollars are tax-free; mixed-premium plans split proportionally. That distinction is why a '60%' group benefit behaves like ~43-45% net.
- What is the difference between short-term and long-term disability?
- Short-term runs weeks to months, often through an employer at partial pay; long-term picks up after the elimination period — typically 90 days — and can pay to age 65. Serious planning focuses on long-term, because that is where group cover and savings both fall short.
- Does Social Security disability pay enough to live on?
- Rarely alone. Average SSDI awards are modest, processing takes months to years, and the majority of initial applications are denied. Treat it as a partial offset with an uncertain start date, not a floor you can build a budget on.
- What does own-occupation mean in disability insurance?
- The policy pays if you cannot perform your specific occupation — a surgeon unable to operate collects even if she could teach anatomy. Any-occupation wording only pays if you cannot work any job suited to your education and experience, a far stricter test.