Life Insurance vs. Disability Insurance

While life insurance protects your family and loved ones from financial loss in the event you die, disability insurance is designed to support you and your family while you are still alive. 

Life Insurance

Life insurance is designed to provide financial support to your family (or whoever you name in the policy) after you pass away. Policy types vary, but in general, enrollees pay a monthly premium over the course of their lifetime, and when they pass away, the policy is paid out to whoever is named in the policy.

Disability Insurance

A disability insurance policy provides a guaranteed income replacement and the chance to maintain your lifestyle despite a work injury or sick leave. It should be an essential part of your overall financial plan to protect you and your family against the worst-case scenario. 

How Life and Disability Insurance Work

Life and long- and short-term disability insurance provide income protection and peace of mind, though they differ in how they work. The primary purpose of a term life insurance policy is to provide your beneficiaries with financial protection if you die; disability insurance protects you and your dependents if you become disabled and can not work to earn an income. 

In 2020, the average Social Security Disability Insurance (SSDI) benefit paid out was $1,277 a month, which equates to $15,324 a year — barely above the federal poverty guideline of $12,760 for a one-person household, and under the $17,240 for a two-person household. 

Applying for Life and Disability Insurance 

Applying for any disability insurance is similar to applying for life insurance. Both policies require roughly the same steps in the underwriting process: 

• You conduct a brief phone interview with a licensed agent to discuss your medical history and financial needs.
• The underwriter helps you determine the policy amount that best suits your lifestyle.
• You have a medical exam.
• The insurer obtains a physician’s statement about your health for their records.

You may have to provide financial documents that show proof of income to determine your eligibility for a disability insurance policy that covers you adequately.