Life insurance is pretty easy to understand. You purchase a life insurance policy and it does exactly what it sounds like, it insures your life right to the end. There are few if’s and but’s. In most policies if you end your own life within the first few years of the policies they will not pay. Otherwise you die and your estate or family collects the proceeds of your life insurance policy. Easy.

What if you don’t die – you are left disabled after a car accident, an accident in your home workshop, a fall down the stairs at home, a stroke, or some other disaster. What if you are disabled and unable to work? What would you and your family do for income? And this is not such an uncommon occurrence. Ever notice all the wheelchair-bound in the shopping malls?

Disability income insurance, which complements health insurance, can replace lost income. Forty-three percent of all people age 40 will have a long-term, meaning 90 days or more disability event by age 65.

These are the 3 basic ways to replace income:
Employer-paid disability insurance
This is required in most states. Most employers provide some short-term sick leave. Many larger employers provide long-term disability coverage as well, typically with benefits of up to 60 percent of salary lasting from five years to age 65, and in some cases extended for life.

Social Security disability benefits
This can be paid to a worker whose disability is expected to last at least 12 months and is so severe that no gainful employment can be performed.

Individual disability income insurance policies
Other limited replacement income is available for workers under some circumstances from workers compensation (if the injury or illness is job-related), auto insurance (if disability results from an auto accident) and the Department of Veterans Affairs.

For most people who work, even those with some employer-paid coverage, an individual disability income policy is the best way to ensure adequate income in the event of disability. When you buy a private disability income policy, you can expect to replace from 50% to 70% of income. Insurers won’t replace all your income because they want you to have an incentive to return to work. Remember that benefits from employer-paid policies are subject to income tax. If you have paid or are still paying paying the premiums yourself, disability benefits are not taxed.