The Best Way to Make Sure You Have Enough Long Term Disability Insurance

September 20, 2021

Why do I need long term disability insurance?

You have been there, you have read a horror story on the internet or heard about a friend that got injured and is now fighting tooth and nail to be able to cover expenses for missed work.  The simple fact is most people do not know or understand how much long term disability insurance they need to cover their costs if something bad happened and they had to miss work. It is difficult to understand terms like adjusted gross income or net income when completing application forms for insurance.

How do I know how much coverage is necessary?

There is nothing much worse than not having the income needed to cover life’s essential expenses. The first thing you need to know before you can get the right amount of long term disability coverage is your annual gross income. Long term disability specifically covers your annual salary so the baseline is knowing that amount and starting from there.

How to calculate your coverage?

There are three steps to calculating how much long term disability coverage you need. After you know your annual salary you will divide the amount by 12 or nine months. For example, an annual salary of $200,000 / 12 months equals a gross monthly salary of $16,666.67. Next you want to take your gross monthly salary and divide it by 100. In our example, it would equal 166.67.

The final step requires a coverage rate. Depending on your policy, typical coverage ranges between 50% and 80% of your "pre-disability earnings.” So in layman's terms policies will cover only what you were earning when you experienced the disability. Let’s say my coverage rate of $ 0.7. This means my premium rate would be $116.67 monthly.

What’s next?

Now that you are an insurance wiz you can begin selling long term disability insurance plans to your friends. Just kidding, maybe you or your spouse or significant other is pregnant and the paternity leave is not what you both bargained for. How much money do you need to comfortably miss work for 4-5 months while also seeing costs rise with the birth of a new child? Long term disability insurance is a great supplement to planning for taking extended time off for something like pregnancy.


At Moderntax, we help consumers save time by allowing permission to access their tax, wage and income, and IRS account records to be shared securely with certified financial services providers across banks, insurance companies, and fintech apps.

As we have expanded Moderntax, we have discovered some unique patterns. Most people do not understand gross income. This causes issues when trying to assess things like long term disability insurance among other things.

Additionally, gross income does not show up natively in your tax return. When you look at your tax return you will see adjusted gross income which is not the real number you need to calculate what type of LT disability coverage you need.

Lastly, payroll data hides gross income in many cases and bank data can not show you your gross income. Gross income is clearly evident only where all your income sources are, which is your wage and income transcript.  

ModernTax allows consumers to authorize a report that automatically calculates their wage and income which can then be used to calculate a premium. An added benefit is that with the report you can get your cumulative gross income that includes an annual snapshot of your income over previous years. Additionally, it sources from a third party, the IRS, so that insurance providers can know exactly how to underwrite the policy creating a win-win for both consumers and providers.

Once consumers are aware of their gross income they can proceed with knowing the exact amount of coverage they need with their long term disability insurance plan.

Next we will do a deep dive into the top providers.

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