Your ability to show up for work and earn a paycheck is easily your biggest asset. Disability insurance makes sure you have money available to cover expenses if that asset suddenly goes away when you become injured or sick enough that you can't work.

What to Look For

Disability insurance comes in two varieties, short term and long term. Short-term disability insurance kicks in as soon as you're disabled and continues for up to sixty or ninety days, depending on the terms of the policy. This coverage provides a percentage of your income for the length dictated in the policy. You can save paying premiums on a short-term disability policy by using your savings to self-insure. Be sure you always have enough emergency cash to cover expenses between the end of short-term disability benefits and the beginning of your long-term disability benefits, usually ninety or 180 days. You'll save premium expenses on your long-term disability if you can self-insure to cover a 180-day waiting period.

Long-term disability can pay benefits for three or five years, or even until you are age 65. Be sure the insurer has high ratings and is a well-known company. Don't cut corners to save on premiums; your benefit is only as good as the strength of the insurance company.

Employer Plans or Private

Most large, and some smaller, employers offer disability coverage as an employee benefit. Premiums are generally reasonable, and in many cases short-term disability coverage is free to the employee. Some employers will give you the option to pay your long-term disability premiums yourself. Taking advantage of this will make your benefits tax-free. If your employer pays the premiums, your disability benefits will be taxable.

If your employer doesn't offer a plan or if your current employer has a plan but many employers in your industry do not, consider buying a plan yourself privately. Premiums are based on age, so doing this now rather than waiting could be smart. You don't need to buy coverage for your whole income. If you can live on less than you make, but don't quite have the assets to retire today, consider buying enough coverage to keep you afloat if the worst happens. You can save on premium costs by limiting the benefit period to five years, extending the waiting period to 180 days, and forgoing the inflation rider.

Self-Employed

Once you've been self-employed for two years, with consistent income on your tax return, insurance companies will consider you for disability coverage. You don't need to buy the maximum benefit they offer. Consider saving on premiums with a policy that covers the minimum you need for personal expenses. Think about whether your business would continue if you were disabled. Do you have an employee who could take over? Would you instead change industries and work at something different if you were disabled? A policy with a high benefit for just five years might help make a transition to a new vocation while saving on premium expenses. If you have an employee who could help with your business, buying a policy that pays to age 65 but that has a longer waiting period may be a better choice.