Long-Term Disability Insurance

Your ability to earn income is your most valuable financial asset.

A 30-year-old earning $75,000 will earn roughly $2.5 million over the next 30 years, even with no raises. Protecting that income stream is more important than protecting your car or your phone.

The Most Underinsured Risk

Long-term disability insurance replaces a portion of your income — typically 60% — if an illness or injury prevents you from working for an extended period. This is the most underinsured risk for working-age adults.

The Social Security Administration estimates that more than one in four 20-year-olds will experience a disability lasting at least a year before reaching retirement age. Not a catastrophic accident. A year. A back injury, a serious illness, a mental health crisis that takes you out of work for twelve months. These aren’t exotic risks. They’re ordinary ones that most people have no coverage for.

You don’t need to die for this policy to matter. You just need to get hurt badly enough that you can’t work for a year.

Employer Coverage Isn’t Enough

Many employers offer basic disability coverage at no cost. Take it — but read the fine print.

Employer plans sometimes cap at $5,000 per month regardless of your salary. If you earn $8,000/month, that leaves a $3,000 gap. Some employer plans define “disability” so narrowly that you’d need to be unable to do any job, not just yours. A surgeon who can’t operate but could theoretically answer phones might not qualify under a strict “any occupation” definition.

A supplemental individual policy fills these gaps. It costs more than term life but protects against a risk that’s far more likely. When shopping for an individual policy, look for “own occupation” coverage — it pays if you can’t do your job, regardless of whether you could do something else.

Why It Matters for FIRE

For FIRE-focused savers, disability insurance is the policy that protects the accumulation phase. The years when you’re building your portfolio are the years when losing your income hurts most.

You can survive a bad market year. You can survive a job loss with an emergency fund. You cannot easily survive two years of zero income with ongoing medical bills and no disability coverage. The savings rate you’ve worked to build doesn’t just stall — it goes negative as you draw down savings to cover living expenses.

When to Drop It

Once your portfolio reaches the point where investment returns can cover your expenses, the need for disability coverage fades. If your annual spending is $40,000 and your portfolio is $1,000,000, you’re at the 4% withdrawal rate. A disability that prevents you from working is no longer a financial emergency — it’s a lifestyle adjustment. The portfolio handles the income replacement that the insurance policy used to provide.

Until then, it’s essential.