Disability Insurance Calculator

Your car is insured. Your home is insured. The paycheck that funds both usually isn't — even though, for almost everyone under 50, a long stretch of being unable to work is more likely than the house fire they insure against without a second thought. This lesson prices what disability coverage actually delivers. A long-term disability policy replaces a fraction of your gross pay — commonly around 60% — and that number is cut, only ever downward, by two mechanics the enrollment page never shows. First, the cap: benefits are hard-capped at a monthly maximum, so past a certain income the effective replacement rate quietly falls below the label — the bigger the paycheck, the smaller the policy really is. Second, the tax flip, the genuinely counterintuitive one: who pays the premium decides whether the benefit is taxed, and it runs backwards from intuition. An employer-paid premium makes the benefit TAXABLE income; a premium you pay yourself with after-tax dollars makes the benefit TAX-FREE. The 'free' workplace plan can therefore net meaningfully less than an identical policy you paid for — precisely when your income stops. One mechanic finally works in your favor: a benefit should be compared against take-home pay, not gross, because a working paycheck loses income tax AND payroll tax while a disability check owes no payroll tax at all — so a tax-free 60%-of-gross can quietly replace three-quarters of what you actually live on. The simulator sweeps income across the x-axis, races the self-paid and employer-paid benefit against your working take-home, and marks where the cap starts leaving income uninsured.

Free and interactive — no sign-up, nothing to install. Read the full lesson for the plain-language explanation.