Disability insurance provides you with tax-free income to meet daily expenses should you become sick or injured and unable to work.

Disability coverage can last for different lengths of time.

Short-term disability has waiting periods of 0 to 14 days with maximum benefit periods no longer than two years. Long-term coverages have waiting periods of several weeks to several months with maximum benefit periods ranging from a few years to the rest of your life.

At age 40, the average worker faces only a 14 percent chance of dying before age 65 but a 21 percent chance of being disabled for 90 days or more.

There are three basic ways to replace income:

1. Employer-paid disability insurance
   This is required in most states. Most employers provide some short-term sick leave. Many larger employers provide long-term disability coverage as well, typically with benefits of up to 60 percent of salary lasting from five years to age 65, and in some cases extended for life.
2. Social Security disability benefits
   This can be paid to workers whose disability is expected to last at least 12 months and is so severe that no gainful employment can be performed.
3. Individual disability income insurance policies
   Other limited replacement income is available for workers under some circumstances from workers compensation (if the injury or illness is job-related), auto insurance (if disability results from an auto accident) and the Department of Veterans Affairs.

For most workers, even those with some employer-paid coverage, an individual disability income policy is the best way to ensure adequate income in the event of disability.

Insurers won’t replace all your income because they want you to have an incentive to return to work. However, when you pay the premiums yourself, disability benefits are not taxed. (Benefits from employer-paid policies are subject to income tax.)