Disability insurance replaces your income if you can’t work because of an unexpected injury or illness. While having disability insurance is important in your peak earning years, things can change as you approach retirement.
You may find that at a certain point, it’s no longer worth it to keep paying for disability insurance — the closer you get to no longer working, the less you stand to gain from your disability insurance policy.
Do you still need disability insurance after you retire?
It depends on when you plan to retire. Say you have a long-term disability policy and you plan to retire early — in your 40s or 50s. It’s worth keeping your disability insurance even after you retire, in case you decide to start working again before you age out of your policy’s benefit period.
Assuming you have what’s called a non-cancellable rider, your rates will be locked in even for as long as you keep the policy. If you drop your disability insurance but go back to work later on, getting disability insurance in your 50s or 60s will be difficult — not to mention much more expensive than getting a policy when you’re younger.
But you probably don’t need to keep your disability insurance policy through retirement age, even if you keep working. Disability insurance, like most kinds of insurance, means you’re paying for a protection you may never actually need. If you only plan on working for five or ten more years, the money you spend on your policy could probably go to better use.
Can you keep your disability insurance after you turn 65?
Your policy’s benefit period, or the maximum length of time you can get payments if you become disabled, will tell you how long you can keep your policy. Some common benefit periods are 1, 2, 5, or 10 years, or until you’re 65 or 67.
You can’t keep your disability insurance after your turn 65 if your policy will only pay benefits until your 65th birthday.
You may be able to keep your policy longer if your benefit period goes past 65 — but at that point you may be better off dropping the policy and putting the money towards retirement savings instead.
Can you drop your disability insurance before you retire?
You can drop your disability insurance before you retire, but it’s not always a good idea. Before you give up your disability insurance policy, consider both your savings and expenses before making a decision.
Could you stop working right now and live the life you’re used to? If the answer is no, it’s probably worth keeping your disability insurance for as long as you keep working.
What to do instead of dropping disability insurance
There are good reasons for dropping your disability insurance, but if you’re thinking about dropping your disability insurance just to save money, there are other things to try first.
Lower your benefits: You can lower your premiums by decreasing your benefit amount as your coverage needs change.
Reduce your benefit period: Another way to lower your premiums is by reducing your benefit period once you’re older and closer to retirement and your savings goals, but it’s a bad idea to scale it back when you’re younger.
Switch from graded premiums: You can change a policy with graded premiums (premiums that get more expensive as you age) to one with a single premium if you find your rates are getting too high.
What about Social Security?
Depending on your age, you might qualify for benefits through Social Security or Social Security Disability Insurance (SSDI). You can’t qualify for both of these programs at the same time once you reach retirement age.
But you can qualify for benefits from SSDI and your private disability insurance policy at the same time. In fact, your disability insurance company may require you to apply for SSDI benefits if you make a disability insurance claim. Any benefits you get from SSDI will offset those you get from your policy.
→ Read more about SSDI and long-term disability insurance
What happens to employer-sponsored disability insurance when you retire?
When you retire you lose your work-sponsored disability insurance. The policy is tied to your employer, so your coverage ends when you leave your job.
If you’re collecting disability insurance benefits through a work plan and you retire, your coverage would also end. In that case, it’s worth holding off on retiring until the end of your benefits period.
How to cancel your disability insurance
If you’re close to retirement or meeting your savings goals and you decide it’s time to drop your disability insurance, you can cancel your policy in a few simple steps.