Protect your biggest asset — your ability to earn

People tend to picture disability as a rare, dramatic event, but most interruptions to earning are far more ordinary — a back injury, an illness, a surgery with a long recovery. Over a working life, a spell that keeps you from working is more common than many expect, and it is the income, not just the health, that takes the hit.

• Usually illness, not accident. Most claims come from everyday medical conditions rather than dramatic accidents — the kind of thing that can happen to anyone, at any age, and keep them off work for months.
• The bills do not pause. A mortgage, a family and day-to-day costs carry on regardless of whether a paycheck arrives. Disability cover is what keeps those commitments met while you are unable to earn.
• It protects the whole plan. Without income, people often stop saving and start drawing down — undoing years of progress. Replacing part of the income keeps the rest of the plan intact.

Group disability cover through an employer is a valuable starting point, but it is rarely the whole answer. It typically replaces only part of your income, can be capped, and belongs to the job rather than to you — all of which tend to bite hardest for higher earners.

• It replaces only part of your income. Group plans generally cover a share of base salary, not the whole of it, and often up to a monthly ceiling. The shortfall is left for you to cover from elsewhere.
• It can miss bonus and variable pay. Cover is frequently based on base salary alone, so for those whose earnings lean on bonus, commission or other variable pay, the protected slice can be smaller than it first appears.
• It leaves with the job. Because the cover belongs to the employer, changing jobs or losing one can mean losing the protection precisely when continuity matters. An individual policy you own fills that gap and goes with you.

The most important detail in a disability policy is how it defines being “disabled”. That definition decides when benefits actually pay out, and the difference between the two common versions is large enough to be worth checking before anything else.

• Own-occupation. Pays if you cannot perform the job you are trained for, even if you could do some other kind of work. For a specialist whose income depends on a specific skill, this is the stronger, more protective definition.
• Any-occupation. Pays only if you cannot work in more or less any suitable job. It is a higher bar to clear, so benefits are harder to trigger — and cover written this way is generally less expensive as a result.
• Why the wording wins or loses claims. Two policies can look similar until you reach the definition. It is the single clause most worth understanding, because it is what determines whether a claim is paid at all.

A subtle but important point: whether the benefit you receive is taxed usually depends on who paid the premiums, and with what kind of money. It is the difference between the headline benefit and what actually lands in your account, so it is worth getting right.

• Who paid the premium drives the tax. As a general rule, benefits from a policy you paid for with after-tax money tend to arrive tax-free, while benefits from employer-paid cover are often taxable. The same headline benefit can therefore be worth quite different amounts in hand.
• It changes how much cover you need. Because tax can quietly shrink an employer benefit, the real protection it provides may be less than the stated figure — something to weigh when deciding whether to add individual cover on top.
• Worth confirming for your situation. The treatment depends on the specifics of how a policy is set up and paid for. It is exactly the kind of detail an adviser checks so there are no surprises at claim time.

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