Income Protection Ratio Calculator
Example: Monthly gross income: 7500 $ · Paid sick days (in weeks): 2 · Short-term disability coverage (weeks): 13 · Short-term disability benefit (% of salary): 60 % · Long-term disability benefit (% of salary): 60 % · LTD elimination period (days): 90 · Estimated SSDI monthly benefit: 1500 $
| Unprotected gap weeks (between STD and LTD) | 0 |
| Income at risk during gap | $0 |
| Weeks covered by sick days + STD | 15 |
| Monthly income once LTD kicks in | $6,000 |
| Long-term income replacement ratio | 80.00% |
Worked example
Monthly gross $7,500: 2 weeks sick leave + 13 weeks STD = 15 weeks before STD runs out. LTD requires a 90-day (12.9-week) elimination period, but combined sick+STD covers 15 weeks — so there is no gap here. LTD kicks in: 60% of $7,500 = $4,500 gross, taxable at 22% = $3,510 net + $1,500 SSDI = $5,010/month. Against $7,500 gross, the protection ratio is 67% — adequate for most households if expenses can flex down.
Frequently asked questions
What is an elimination period in disability insurance?
The elimination period is the waiting period between the start of disability and when LTD benefits begin — similar to a deductible in time rather than dollars. Common periods are 60, 90, or 180 days. Longer elimination periods lower premiums but increase the gap you must self-fund.
Why is employer LTD taxable but personal LTD not?
When your employer pays the disability premiums, the IRS treats the benefit as a wage substitute — fully taxable. When you pay premiums with after-tax dollars, benefits are tax-free. Supplementing employer LTD with a personal policy can create a tax-free income stream in the worst-case scenario.
How much disability insurance is enough?
Most financial planners target 60–70% of gross income in total disability coverage (combining all sources). At that replacement rate, most households can maintain essential expenses. Replacing 100% is typically not possible (insurers cap individual policies to maintain return-to-work incentives).
Can self-employed workers get disability insurance?
Yes. Individual disability insurance policies are available from major insurers for self-employed workers, though premiums are higher because there is no employer group pricing. Coverage is particularly important for sole proprietors with no sick leave or STD policy fallback.