It’s Time to Pick Your 2026 Corporate Benefits. A Big One Flies Under the Radar.

Serious musculoskeletal pain is among the disabilities that a workplace insurance plan might cover. (Dreamstime)

Millions of Americans are going through the annual ritual of choosing corporate benefits for next year, during open enrollment season.

It’s a good time to assess benefits like vision care or even pet insurance. Disability insurance is also on the menu at most employers, and it’s a major benefit that too many people overlook.

A mental or physical disability is far more likely to hit workers and threaten their financial stability than a premature death. About 1 in 4 of today’s 20-year-olds will become disabled before reaching their full retirement age of 67, according to Social Security Administration estimates. Moreover, the Trump administration has proposed changes to rules for qualifying for Social Security disability benefits, tightening criteria especially for older workers.

A Social Security press officer said the Trump administration is “promoting dignity in work and modernizing policies that protect the integrity of the disability insurance system,” adding that the rule changes are still in early stages of development.

Companies can help bridge a potential gap in coverage, though many employees aren’t even aware of the benefit. Just 56% of workers can say for sure whether their employer offers a disability insurance benefit, according to a 2024 study by Limra and Life Happens, a nonprofit that provides insurance education.

“There’s a lot of talk about preparing for retirement but not a ton of conversation about preparing for disability,” says Meghan Pistritto, vice president of product for Prudential Group Insurance.

How do you know how much to buy, or whether it’s worth the cost?

A general guideline is to replace 60% to 70% of your income with a combination of short- and long-term disability coverage. You want to make sure your benefits cover essentials like food, housing, healthcare, and child care. If you become unable to work due to an illness or injury–musculoskeletal issues like back pain and arthritis are among the most prevalent claims–you will most likely reduce spending on travel and other discretionary expenses, and won’t have the expense of commuting.

One hitch is that workers can’t replace 100% of their pre-disability income, even by stacking a workplace policy with an individual one bought outside of work. Insurers figure you won’t have an incentive to return to work if they cover 100% of your income, and individual policy issuers generally require proof of income. If you qualify for Social Security disability, your private-plan benefits may be reduced by the amount you receive from the federal government. A handful of states have mandatory paid disability programs as well.

The more you earn, the more you may need to supplement your disability benefit with an outside policy. Say your workplace plan replaces 60% of your income, up to a maximum of $10,000 a month. Most policies pay out the lesser of those amounts. So, if you earn $120,000 a year, you can expect $72,000 in benefits if your claim lasts a full year. If you’re earning, say, $400,000 a year, you’d want to replace at least 60%, or $240,000, if you become disabled.

Since you’d only receive $120,000 through your workplace policy, you could fill the gap by buying an individual policy, says Bryan Wood**,** a partner in the employee benefits division at C3 Risk & Insurance Services. Note that individual policies are medically underwritten, so applicants can be disqualified based on their health status.

Taxation is another consideration. If your employer offers disability insurance and pays the premium for the policy, the benefits will generally be taxable. If you pay the premium, benefits are tax-free. If it’s a 50/50 split, then half of the benefits will be taxable, Pistritto says.

Many workers fail to consider inflation when pricing out individual disability policies. Basic policies may provide a fixed dollar amount for the duration of the claim, and inflation can erode your purchasing power over time. Wood recommends buying an automatic-increase rider that provides for annual boosts in coverage without medical underwriting while you’re still working. By contrast, cost-of-living riders increase your benefit amount once you’re already disabled, and they tend to be pricier than automatic-increase riders.

Disability benefits can also factor into your retirement planning. Some insurers offer a retirement protection rider to replace the amount that you would have contributed to a retirement plan while you’re out on disability.

Don’t expect to keep contributing to your 401(k) if you go on disability. The Internal Revenue Service requires contributions to come from income earned through work, cutting off a 401(k) and IRA while you’re on disability.

Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com