What is disability insurance and why is it important?

Disability insurance replaces a portion of your income (typically 60–70%) if you become unable to work due to illness or injury. Your ability to earn income is your most valuable financial asset — for a 35-year-old earning $120,000, the present value of their future earnings is over $3 million. Yet most people insure their car and home but not their income. Social Security disability benefits are difficult to qualify for and replace only a fraction of pre-disability income. Many employers offer group short-term and long-term disability coverage; if yours does, enroll. If not — or if you are self-employed — consider purchasing an individual long-term disability policy covering at least 60% of your gross income through age 65.