About the Disability Insurance Calculator
This disability insurance calculator works out how much monthly income you would have if an illness or injury stopped you from working, and how much extra long-term disability (LTD) coverage you would need to keep paying your essential bills. It accounts for your employer’s group plan, its monthly cap, and whether its benefits would be taxed.
It is built for employees checking whether their workplace coverage is enough, self-employed people with no group plan, and anyone comparing individual disability quotes. Your ability to earn is usually your largest financial asset — the calculator also shows the total earnings at risk until retirement.
Benefits from an employer-paid plan are taxable income, while benefits from a policy you pay with after-tax dollars are generally tax-free, so the calculation compares after-tax benefits with your essential monthly spending. Insurers usually limit total coverage to about 60–70% of gross income, and premium estimates use the common 1–3% of income rule of thumb.
With the default inputs, the additional monthly benefit needed is $900.00. Change any value above to recalculate instantly.
How to use the disability insurance calculator
- 1Enter your gross yearly income and essential monthly expenses.
- 2Enter your employer LTD percentage and monthly maximum from your benefits summary.
- 3Say whether your employer pays the premium and set your tax rate.
- 4Add any other income you could count on while disabled.
- 5Review the gap, the insurable amount and the estimated premium.
Formula and method
The group benefit is your monthly gross salary times the plan’s replacement percentage g, limited by the plan’s monthly maximum. If your employer pays the premium, that benefit is taxable, so it is reduced by your tax rate t; if you pay the premium with after-tax money it is tax-free. Adding any other reliable income gives what you would actually have each month.
The gap is how far that falls short of your essential expenses. Because insurers rarely issue total coverage above about 70% of gross income, the insurable amount is the gap limited to 70% of salary minus the group benefit. The premium estimate scales the 1–3%-of-income rule of thumb (which assumes a policy replacing 60% of income) by the size of the benefit you would buy.
- g
- Employer plan replacement percentage
- Cap
- Employer plan monthly maximum benefit
- t
- Tax rate on taxable disability benefits
- Other
- Other monthly income while disabled
Worked examples
$90k salary with employer-paid 60% LTD
The group plan pays 60% of $7,500 = $4,500 a month, but it is taxable, so about $3,600 after a 20% tax. Against $4,500 of expenses that leaves a $900 gap. A 70% issue limit allows $5,250 − $4,500 = $750 more, which at the 2% rule of thumb costs about $300 a year.
High earner hitting the plan cap
60% of $20,000 a month would be $12,000, but the plan caps at $10,000, which is $7,000 after 30% tax. The gap to $12,000 of expenses is $5,000, but only $4,000 more is insurable under a 70% limit ($14,000 − $10,000). At 2% of income for a 60% policy, that benefit costs about $1,600 a year.
Self-employed with no group plan
With no group plan and $500 a month of other income, the full $3,300 of remaining expenses is uncovered. That is within the $4,200 (70%) issue limit, so a $3,300 individual benefit is insurable; at 2.5% of income for a $3,600 (60%) policy it costs about $1,650 a year.
Frequently asked questions
How much disability insurance do I need?+
Enough, together with any group coverage and other reliable income, to cover your essential expenses after tax. Most people aim for 60–70% of gross income, which is also about the maximum insurers will issue.
Are disability insurance benefits taxable?+
If your employer pays the premium, or you pay it with pre-tax dollars, the benefits are taxable income. If you pay the premium yourself with after-tax money, the benefits are generally tax-free. That is why a 60% employer plan often replaces much less of your take-home pay.
How much does disability insurance cost?+
Individual long-term disability policies commonly cost about 1% to 3% of your gross income a year. Price depends on age, health, occupation, the benefit amount, elimination period, benefit period and riders such as own-occupation coverage.
Is Social Security disability (SSDI) enough?+
SSDI requires that you cannot do any substantial work for at least 12 months, has a five-month waiting period and pays an amount based on your earnings record — often far below a professional salary. Treat it as a backstop, not your main plan.
What is the difference between short- and long-term disability insurance?+
Short-term disability typically pays for a few weeks to about six months, often 60–70% of pay. Long-term disability starts after an elimination period (commonly 90 days) and can pay for years or until retirement age, which is where the big financial risk lies.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.