There’s one type of insurance people often forget about, said Dave Ramsey on a recent episode of The Ramsey Show. “If you’re gonna be out of work for a while, then you need to make sure the money’s still showing up,” he said. He was talking about long-term disability insurance, which many working Americans have never seriously considered.
Most people know they need life insurance. Disability insurance gets ignored. But skipping disability coverage could lead to financial ruin.
The Coverage Most People Skip
“Life insurance steps in when you die,” explained co-host George Kamel. “Disability insurance steps in while you’re alive but can’t work, so it replaces a large part of your income so the bills still get paid while you get back on your feet.”
With a disability, the income stops, but the mortgage, groceries, utilities, and car payments keep arriving every month. The financial damage from a long-term disability can actually exceed the financial damage from death, because the bills never pause.
The economic backdrop makes this more urgent. At a 4% savings rate, most households are saving a small fraction of their annual income. For example, a household earning $70,000 a year is saving roughly $2,800 annually. Three months without income would exhaust most of that cushion entirely.
What the Numbers Actually Look Like
Long-term disability insurance typically replaces 60% to 70% of your pre-disability income. That replacement rate sounds like a cut, but it is far better than the alternative.
Consider a 42-year-old earning $80,000 a year with a mortgage, two kids, and roughly $25,000 in savings. A standard long-term disability policy would pay 60% to 70% of pre-disability income during a qualifying disability, which would pay approximately $48,000 to $56,000 per year during a qualifying disability. Without that coverage, this household could run through its savings quickly, then faces the choice between drawing down retirement accounts early (triggering taxes and penalties) or falling behind on debt obligations.
With a policy in place, the bills stay paid. The retirement accounts stay intact. The family doesn’t have to sell the house.
Wages and salaries represent approximately half of total personal income in the U.S. For households that depend entirely on earned income, that dependency is the single biggest financial risk they carry. Disability insurance is the hedge against it.
Employer Coverage Is a Starting Point, Not a Finish Line
Ramsey’s advice on sourcing coverage was practical: “If your employer gives you free disability insurance, great, take it. If it’s discounted there at a better price, take it.”
Employer-sponsored group disability plans are worth accepting, but they come with real limitations. Coverage typically ends the moment you leave the job. Benefit caps can leave higher earners significantly underinsured. And group plan definitions of “disability” often become more restrictive after the first 24 months of a claim.
An individual policy, purchased separately, follows you regardless of employment. It uses the definition of disability you agreed to at purchase. That portability matters most precisely when you’re least able to shop for new coverage, which is after a diagnosis.
Who Needs This and Why the Timing Matters
Ramsey was emphatic: “Whether you’re single or married, it’s not optional.” That applies especially to households in their 30s and 40s, when earning years are long and savings are still building. A 35-year-old who becomes disabled has potentially 30 years of income at risk. Life insurance addresses one scenario. Disability insurance addresses a statistically more common one.
Start with your employer’s benefits summary and find out exactly what disability coverage you already have. Look for three things: the benefit amount as a percentage of salary, the elimination period (how long you must be disabled before benefits begin), and whether the policy is portable if you leave the job.
If the employer plan has gaps or no plan exists, get a quote for an individual long-term disability policy. Aim for a benefit that covers at least 60% of your gross income. The younger and healthier you are when you apply, the lower the premium.
Ramsey’s core point: income protection is not a luxury product. For anyone whose household depends on a paycheck, disability insurance is the coverage that keeps everything else from unraveling.
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