Disability and your mortgage
The likelier interruption, and the one people insure least.
Mortgage protection conversations focus on death. During working years, an illness or injury stopping your income for months or years is the more probable interruption.
Life insurance does nothing for it, and the mortgage is due either way.
The definition decides everything
Every disability product turns on how it defines disability, and the difference between definitions is enormous.
Own occupation means unable to perform your own job. Any occupation means unable to perform any work you're reasonably suited to, which is a far harder standard to meet. Some policies use own occupation for an initial period and then switch.
Read that clause before anything else, including the price.
What's typically available
- Employer group long-term disability, which usually replaces a portion of base salary and ends with the job
- Individual disability coverage, which you own and which follows you
- Mortgage disability or payment protection cover, tied to the loan payment
- State disability programmes, in a small number of states
- Social Security disability, which uses a strict standard and is not a plan
The tax point people miss
Where an employer pays the premium for group coverage, benefits are generally taxable to you. Where you pay with after-tax money, benefits are generally not.
So a group policy replacing a stated percentage of salary may replace considerably less after tax than the headline suggests. Confirm your own situation with a tax professional, and factor it into what you'd actually have to live on.
What to check on any policy
- The definition of disability, and whether it changes after a period
- The elimination period before benefits begin, and whether you could bridge it
- How long benefits last
- Whether benefits are reduced by other income or Social Security
- Whether coverage is portable if you change jobs
- Whether the policy is non-cancellable, and whether premiums can rise
The gap for higher earners
Group coverage typically replaces a percentage of base salary up to a cap, and often excludes bonus and commission. For anyone whose income is substantially variable or above the cap, the real replacement rate can be much lower than it appears.
Supplemental individual coverage is how that gap is usually closed.
Common questions
Own occupation — unable to perform your own job — is the stronger standard. Any occupation requires inability to do any work you're reasonably suited to and is much harder to meet.
Generally yes where the employer paid the premium, and generally not where you paid with after-tax money. That can make a group policy replace considerably less than its headline percentage.
It typically replaces a percentage of base salary up to a cap and often excludes bonus and commission, and it ends with the job. For variable or higher earners the real replacement rate can be much lower than it looks.
Want this priced for your situation?
This page is general information, not advice about your specific circumstances. A licensed insurance professional can tell you what’s actually available to you.
General information only, not insurance advice. Coverage, availability, and terms vary by insurer and by state, and are subject to underwriting. Quote My Policy LLC is a licensed insurance producer. Nothing here binds coverage.