Statistics show that you are more likely to be disabled for at least 90 days before age 65 than you are to die. Unfortunately, many people assume that a group disability policy, perhaps combined with Social Security benefits, will replace their full monthly income. In most cases, it won’t — and the gap can be wide.

Disability insurance can help fill the gap. Here’s how to determine how much you need.

Understand the basics

Disability insurance can be used to replace 70 percent to 80 percent of your pre-tax income. 

Now let’s imagine the unimaginable: Tomorrow, you are disabled and unable to earn any wages for months, perhaps permanently. Would you have sufficient non-insurance sources of income to live on? Some possible income sources include your spouse’s income, investments, or savings.

If the disability is work-related, you may be eligible for workman’s compensation or veteran’s insurance. And, an auto-insurance settlement might pay for disability resulting from an auto accident. Also, Social Security may provide benefits, but qualifications are strict. Some states also provide short-term disability coverage.

Now keep in mind, you may have additional expenses with your disability. If a gap exists between your income sources and your monthly living expenses, disability insurance is a viable option to fill it.

Determine what coverage you have

Although most employers sponsor some long-term disability insurance — something that would last more than a few months, but not necessarily to age 65 — most people don’t know how much coverage they have. You also need to find out what percentage of your income that your employer’s policy will replace.

   In addition, more than half of employers’ group plans require employees to pay the premiums. If you’re not paying premiums, check to see if the employer is. He or she may not be. 

Typically, group policies pay 60 percent to maybe 70 percent of your pre-tax income. Some policies cap benefits at 50 percent, and most group policies have a monthly income cap. Also, bonus income usually is not included.

Social Security disability payments typically offset payments that you would receive through a group policy. So, when adding up your potential replacement income, check to see how the group policy treats Social Security disability income. Individual policies are less apt to offset those payments.

Taxes are another critical factor. If you use after-tax dollars to pay premiums for the group policy, the benefits are not taxable. The same applies to a policy you buy on your own. But the payments are taxable if the employer pays the premiums. Paying taxes on 60 percent replacement-income could significantly reduce what’s left.

Calculate your needs

Once you have gathered all of this information, calculate what coverage you have. Then, add in your income from non-insurance sources to determine total monthly income. If you find that your total income will not meet monthly living expenses if you become disabled, you might want to buy a supplemental disability policy.

Check with your employer to see if you can purchase a supplemental policy through the group-coverage option. It’s likely to cost 10 percent to 15 percent less than on the open market. However, the group policy may have a monthly income cap that’s too low for your needs. If that’s the case, you’ll have to buy an individual policy.

Remember, the total from all of your policies can’t exceed 70 percent or 80 percent of your pre-tax income. Another consideration when determining the amount of coverage to buy: A sufficient amount today probably won’t be sufficient years down the road, so consider an inflation rider.

R. Hutton Cobb is a Wachovia Securities financial adviser with Financial Planning Associates in Greenville, N.C.