For most people, their greatest financial asset is their job. But if you were unable to work as a result of an accident or illness, how would you and your family pay the bills? Savings can evaporate fast and parents or siblings may not be able to help.

The answer could be to plan ahead by taking out disability insurance. It can provide a much-needed safety net by replacing up to 70 percent of income. Yet few Americans even consider such a policy. In fact, disability insurance typically takes a distant third place after life and auto insurance: seven in 10 workers don’t have any long-term disability coverage.

The chances that you'll need it, though, may be greater than you  realize. More than 25 percent of today’s 20-year-olds will become disabled before reaching age 67 according to the Social Security Administration. And 43 percent of all people age 40 will be sidelined for 90 days or more by age 65, according to data from the Insurance Information Institute.

Not all people become disabled due to an accident. According to the Council on Disability Awareness, about 90 percent of disabilities result from an illness such as cancer and diabetes

As medical bills pile up, the expenses have become the leading cause of personal bankruptcy, with three out of five bankruptcies due to loss of significant income as a result of illness. Even scarier, three-quarters of those bankrupted by medical debt actually had health insurance—it just wasn’t enough to replace their paychecks.

Don't Rely on Social Security Disability Insurance

Social Security Disability Insurance, or SSDI, or workers compensation might not provide a safety net. Consider these statistics from the Council for Disability Awareness:

  • Some 65 percent of initial SSDI claim applications were denied in 2012.
  • The average monthly benefit paid by SSDI by the end of that year was $1,130 per month.
  • Because fewer than 5 percent of disabling accidents and illnesses are work-related, the other 95 percent are not covered by workers’ compensation.

Insurance You Need

To prepare for an emergency, you should have enough in savings to get you through the initial three to six months without income. After you run through the emergency fund, long-term disability insurance can be a lifesaver—the average disability claim lasts more than 31 months. Disability insurance is available in two forms:  

  • Short-term disability insurance replaces a portion of your income during the initial weeks. Policies cover anywhere from a month up to a year of disability, providing income protection during the waiting period before long-term disability insurance kicks in. The major drawback: Short-term disability insurance is generally offered only through an employer.
  • Long-term disability insurance pays benefits of up to 60 percent of your pretax salary from five years up to, ideally, age 67. Many larger employers provide long-term disability coverage, however only about one-third of workers have access to long-term disability insurance through their employer. Others may want to buy their own disability coverage. Furthermore, because employer-offered plans generally limit the benefit period, sometimes to as little as two years, you may wish to supplement your protection.

The reassuring news is that the sooner you purchase long-term disability insurance, the less it will cost. Extending the period before you start receiving benefits will also lower the price. Generally, expect to pay between 1 and 3 percent of your salary.