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Disability Insurance

Your group LTD pays less than you think — after tax.

The most common disability-insurance mistake is trusting the benefits booklet: employer group LTD is typically paid with pre-tax dollars, which makes the benefit taxable income — a "60%" plan lands as about 42% of gross after tax. This calculator applies the standard 60–70% replacement target, taxes the group benefit correctly (IRC §104(a)(3) — after-tax premiums make benefits tax-free), and shows the monthly gap an individual own-occupation policy needs to fill.

Why people use this

High earners with group LTD use this to discover the tax surprise before the claim does — a "60%" employer benefit is really ~42% of gross after tax, and the gap is a real monthly number they can quote to a broker. Physicians, dentists, and other own-occupation shoppers use it to size the individual policy instead of accepting the group number.

How it works

1. Enter gross annual income and pick a replacement target (65% is the typical design point).
2. Enter your employer group LTD percentage and who pays the premium — that decides whether the benefit is taxed.
3. Enter your marginal tax rate on the taxable benefit.
4. Read the after-tax employer benefit and the monthly gap an individual policy should cover.

Common questions

How much disability insurance do I need on a $100k salary?

Target 60–70% of gross: $5,000–$5,833/month. If your employer group LTD pays 60% ($5,000/month) with employer-paid premiums, that benefit is taxable — at a 30% marginal rate you keep $3,500, leaving a gap of $1,500–$2,300/month for an individual policy. Individual benefits are tax-free when you pay the premiums after-tax, which is why the target percentages approximate take-home pay.

Are disability insurance benefits taxable?

It depends entirely on who paid the premium and how. Employer-paid (or pre-tax) premiums make benefits taxable as ordinary income. Premiums you pay with after-tax dollars make benefits tax-free under IRC §104(a)(3). Split funding splits the tax treatment proportionally. This single rule is why two "60%" policies can pay wildly different real checks.

What policy features matter most when filling the gap?

In order: a true own-occupation definition (pays if you cannot do YOUR job, not any job), a benefit period to age 65 rather than 2 or 5 years, non-cancellable and guaranteed-renewable terms, a 90-day elimination period bridged by your emergency fund, and a COLA rider for long claims. Comprehensive individual coverage typically costs 1–3% of annual income — and it is cheapest the younger and healthier you apply.

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