Disability income insurance: protecting your income
Disability income insurance protects your source of income if an illness or accident prevents you from continuing to work. This page explains how eligibility for a benefit is determined, the difference between occupation-specific and general coverage, the protection available through a pension fund, and what to check so the coverage matches your income and needs.
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What would happen if your ability to earn a living suddenly stopped? This coverage protects your most important financial asset—you.
Most of us make sure to insure our lives or our cars, but the risk of an illness or accident preventing us from working is actually much higher. For most households, salary is the main source of income. Disability income insuranceA contract under which an insurance company undertakes to compensate the insured in the event of damage in exchange for a periodic payment. is designed to provide a monthly benefit that replaces your salary and allows you to continue funding living expenses even when you cannot work.
How does disability income insurance work?
If you lose the ability to work because of an illness or accident, the insurance pays you a monthly benefit that replaces your salary.
- Benefit amount: In most cases, you can insure up to about 75% of your income.
- Payment period: The benefit is generally paid until you returnThe profit (or loss) from an investment over a certain period, usually expressed as a percentage of the original amount invested. to work or reach retirement age.
What counts as a loss of working capacity?
The precise definition in the policy is the heart of the matter. There are two main types of definitions:
- Occupation-specific disability: The inability to work in your specific occupation. This is a broader and better-quality definition.
- General disability: The inability to work in any other reasonable occupation suited to your experience and education.
Waiting period
Most policies have a waiting period. This is the period between the injury or illness and the point when the insurer begins to pay.
Common waiting periods are 30, 60, or 90 days.
Insurance through the workplace
Some employees receive disability income coverage through their pension savingsA general term for long-term savings products (pension fund, managers’ insurance, or provident fund) intended for retirement., for example through a pension fundA savings vehicle based on mutual risk sharing that includes insurance coverage in cases of disability or death. or bituach menahalimA savings product based on an individual contract between the saver and the insurance company, combining a savings component and insurance coverage. (ביטוח מנהלים; managers' insurance).
What affects the price of the insurance?
The insurance company assesses your occupational and health risks:
- Occupation and risk level: An office worker pays less than a construction worker or diving instructor.
- Age and health: The price increases as you get older or if you have existing medical conditions.
- Income level: The higher the salary you want to protect, the higher the premium.
- The waiting period and duration of the insurance.
Common mistakes and what to learn from them
- Assuming the pension covers everything: Coverage within a pension fund is very basic and does not always suit your specific occupation.
- Insuring too little: A benefit that does not cover your basic expenses will not help when it matters.
- Ignoring the waiting period: Make sure you have an emergency cushion in savings that is sufficient for the first few months, when the insurance is not yet paying.
Bottom line
Disability income insurance is designed to protect you from financial harm if you cannot earn a living. It pays a monthly benefit that lets you maintain stability even when your main source of income stops.
Frequently asked questions
Should I buy private insurance if I have coverage through my pension fund?
Sometimes. Private insurance may offer better occupation-specific definitions and add-ons that are not available through the pension fund. It is recommended to review the details of your existing coverage and supplement it with private insurance where necessary.
Does the insurance also pay for a temporary loss of working capacity?
Yes, as long as the waiting period has passed and a doctor has determined that you are unable to work.
In summary
Disability income insurance is how you make sure your salary continues to reach your bank account even if your body is forced to "take a break." Ultimately, your ability to earn is your strongest tool for building wealth, and this insurance is its warranty. A brief check of the definition—occupation-specific or general—helps ensure that even during a crisis, your household's financial routine will not collapse.