The Disability Insurance Gap Nobody Told You About
By the time you're in your early 50s, the odds of a new cancer diagnosis are 1 in 35. One in four people in their 50s and early 60s will have a physical or medical condition that limits their ability to work. And most of them have no idea how exposed they actually are.
In part two of our insurance series, Wallis Wilkinson Tsai, founder of AboveBoard Financial, is back to talk about disability insurance — what it actually does, where your workplace plan is probably falling short, and how to make sure your bank account doesn't take a 40% hit when life hits the fan.
We talk about the tax trap hiding in most employer benefit plans, why your benefit period matters more than you think, what happens to your coverage when you leave a job, and the business-owner mistake that trips up even the most financially savvy women.
This is the episode your HR department never gave you.
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Wallis Wilkinson Tsai is the founder of AboveBoard Financial, specializing in life, disability, and long-term care insurance for individuals, families, and business owners. She spent over 10 years on Wall Street, including at Goldman Sachs, before starting her own firm. She also happens to have a deeply personal reason for caring about this stuff — which she shares in this episode.
TOPICS COVERED
The Stats That Should Get Your Attention From the US Cancer Statistics Working Group:
* Ages 25–29: 1 in 331 chance of a new cancer diagnosis
* Ages 40–44: 1 in 86
* Ages 50–54: 1 in 35
And it's not just cancer. 1 in 4 people in their 50s and early 60s will have a physical or medical condition that limits their ability to work. Disability insurance exists for exactly this scenario.
What Disability Insurance Actually Does If you're too sick or injured to do your job and your income suffers as a result, disability insurance steps in and pays you a monthly benefit. The goal: smooth out your take-home pay whether you're healthy or not.
Some policies also cover partial disability — meaning if you can only work part-time due to illness, you can still collect partial benefits.
The Workplace Plan Gap (This One's Important) Most employer disability plans cover 60–66.7% of your income on paper. But here's what most people miss: your employer is almost certainly paying the premiums themselves to claim the tax deduction. That means you owe taxes on any benefits you receive. Do the math:
* 60% of income covered
* Minus taxes you still owe on that benefit
* = You could net as little as 40% of your take-home pay
For most people, a 40% drop in take-home pay for any extended period of time is a serious problem.
Individual Policies: The Better Play When you own an individual disability policy and pay the premiums with your own after-tax money, the benefits are tax-free. If you're getting $5,000/month in benefits, that $5,000 is yours, no taxes owed.
Bonus: individual policies aren't tied to your job. They travel with you. They also often give you the right to increase your coverage later without re-qualifying medically — which means locking in coverage sooner gives you more freedom in your career down the road.
How to Think About Benefit Period Disability policies come in different lengths: 2 years, 5 years, 10 years, or through age 65, 67, or 70. The longer the benefit period, the more expensive the premium. The practical reality: the average disability leave is just under 3 years.
Wallis's take: if the full-career plan isn't in budget, start with at least two years. It gives you runway — time to understand your diagnosis, make decisions about what comes next, and avoid the worst-case scenario of dealing with a health crisis and a financial crisis at the same time.
One important caveat: you cannot extend your benefit period once you're on claim. The plan you pick is the one you're locked into.
Timing: When to Get Coverage
* Get it while you're actively employed—carriers want to see your most recent pay stub
* Thinking about quitting? Get coverage first, announce later
* Already have an offer letter? You can generally apply for coverage now, before you start
* Switching to your own business in a related field? Some (not all) carriers will still cover you
The Business Owner Trap If you're a business owner who minimizes taxable income (and a lot of us do, legally), know this: disability carriers underwrite you based on your reported net income, not gross. If your tax advisor has gotten your taxable income down to nearly nothing, your disability benefit would be based on nearly nothing. Talk to someone before you apply.
Free Workplace Plan Review: AboveBoard Financial will review your existing workplace disability plan for free, no strings attached. They'll tell you exactly what you have, where the gaps are, and what to expect if you ever need to use it.
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