What High Earners Need to Know About Disability Insurance

Stephanie Stearns is an assistant director of Insurance Solutions at Northwestern Mutual.

You’ve invested years building your career, income, and future earning potential. For many high earners, the ability to earn an income is one of the most valuable financial assets because it helps fund the lifestyle, retirement savings, business interests, and long-term goals they’re working to achieve.

Yet many assume their employer-provided disability coverage will be enough if they become sick or injured and can't work, even for just a year or two. In reality, workplace coverage often replaces only a portion of earnings, which can leave a gap between the income you receive and the income your financial plan depends on.

Understanding how disability insurance works for high earners can help you better protect the income that powers your financial future.

Why employer-provided disability coverage may not be enough

Employer-provided disability coverage can be a valuable benefit, but it often replaces only a portion of income, typically around 50 percent to 60 percent, and is subject to taxes if your employer pays the premium.

For high earners, the gap can be even larger. Many group disability plans cap monthly benefits and do not cover bonuses, commissions, partnership distributions, or other forms of variable compensation. As income grows, those limits can result in a significantly smaller percentage of actual earnings being protected than many high earners realize.

For example, if your annual salary is $250,000, a group limited-benefits policy may replace only 48 percent of your regular monthly income. This drops to 12 percent if you have an annual salary of $1 million.

That shortfall can affect more than current spending. Retirement contributions and employer matching contributions often stop when someone is no longer working, potentially affecting long-term financial goals.

An extended absence from work can also create financial pressures beyond lost income. For partners, practice owners, and other highly compensated professionals, compensation, ownership arrangements, and employee benefits may be affected over time. In some situations, changes in employment status can also affect access to employer-sponsored health insurance, potentially increasing healthcare costs at a time when treatment and recovery may already be placing additional demands on household finances. For many high-income families, healthcare can be a significant expense, making it important to consider not only income replacement, but the broader financial impact of an extended absence from work.

Individual disability insurance can help fill potential gaps and provide additional protection for the income that supports your lifestyle, goals, and future plans.

How individual disability insurance can fill the gap

Individual disability insurance can supplement your employer’s group plan and protect a greater share of your income while also helping cover likely increased healthcare costs. Unlike group coverage, individual policies can be tied to your actual earnings, so a greater share of your total income can be protected.

For high earners, this can be especially valuable because employer-sponsored disability coverage replaces only a portion of earnings, caps benefits, and typically doesn’t cover all forms of compensation.

There is also a difference in how benefits are taxed. Benefits attributable to employer-paid coverage are taxable, while benefits from an individually owned policy funded with after-tax dollars are income tax-free. As a result, more of the benefit is available to help replace lost income and support lifestyle and financial goals your plan depends on.

Individual coverage also stays with you if you change jobs, while employer-sponsored coverage typically ends when you leave your employer. For professionals whose careers, income, and responsibilities may evolve over time, that portability can be an important advantage.

For very high earners, protecting a meaningful portion of income may require coverage from more than one insurer. Your financial advisor can help determine what options are available based on your income and circumstances.

Individual coverage is also underwritten based on your health, income, and occupation. Those factors can affect eligibility, pricing, and available options. Because health can change unexpectedly, securing coverage while you’re healthy can provide flexibility in the future.

What business owners and specialists should consider

Business owners and other highly trained professionals, such as physicians, dentists, and attorneys, invest significant time and effort building their careers and earning potential. Yet many underestimate how an unexpected illness or injury could affect the income they rely on to maintain their lifestyle and achieve future goals.

For professionals whose income depends on specialized skills, the definition of disability can be just as important as the monthly benefit amount. Depending on the policy, you may still be eligible for benefits if you are unable to perform the duties of your regular occupation but can work in another role.

Some examples include:

• A dentist who loses dexterity needed to perform cleanings, exams, and other dental procedures.
• A trial lawyer who loses the ability to speak or communicate effectively in court.
• A business owner whose cognitive impairment prevents them from performing the specialized work their business depends on.

Own-occupation disability insurance is designed to pay benefits if you cannot perform the substantial and material duties of your regular occupation, even if you are able to work in another role, depending on the terms of the policy. Disability insurance policies determine eligibility based on the duties you perform rather than your job title, making it important to understand how the definition applies to your occupation.

Some employer-sponsored policies may apply one definition of disability during an initial period and a different definition later, making it important to understand how your coverage works and how long benefits may last.

Protecting your business and your income

For business owners, a disability can affect more than personal income. Because your ability to work is often closely tied to the success of the business, an illness or injury may affect not only your financial goals but also your employees, clients, business partners, and ongoing business operations.

To help protect what you’ve built and the people who depend on it, consider whether additional disability insurance solutions should play a role in your overall plan, including:

• Disability overhead expense insurance, which can help cover eligible business expenses and keep the business running if you're unable to work due to an illness or injury.
• Disability buyout insurance, which can help fund the purchase of a disabled owner’s share of the business and supports a smoother ownership transition when a buy-sell agreement is in place.
• Disability key person insurance, which can help protect the business if a critical employee is unable to work by providing funds to offset the financial disruption and support business continuity.
• Group disability insurance, which can help provide income protection for employees and support retention and employee financial well-being.

These solutions are often the most effective when considered together. Individual disability insurance can help protect personal income, disability overhead expense insurance can help keep the business operating, and disability buyout insurance can help support business continuity if an owner becomes disabled. Combined, they can help address risks that affect both the business and the people who depend on it.

You’ve invested significant time, resources, and personal sacrifice to build your business. The right disability protection can help safeguard what you’ve built and support the future you’re working toward.

How disability insurance fits your broader financial plan

For many high earners, the ability to earn an income is one of their most valuable financial assets. That income helps fund not only their current lifestyle but also retirement savings, business interests, and other long-term goals.

If an illness or injury prevents you from working, the impact can extend far beyond today’s income and affect your ability to build and preserve wealth over time. Disability insurance can help protect the income your financial plan depends on and support the future you’re working to create. Reviewing your coverage with your financial advisor can help you evaluate your options and determine whether your protection aligns with your current needs and long-term goals.

As your income, career, or business changes, it may be time to revisit your disability coverage, particularly:

• As your income increases: Higher earnings can mean more lifestyle expenses, financial commitments, and future goals that depend on your ability to work.
• When your compensation structure changes: Promotions, bonuses, commissions, partnership opportunities, or changes in employer-provided benefits may affect your disability insurance needs.
• When your business evolves: Starting a business, becoming a partner, growing a practice, or taking on additional business responsibilities may create risks that call for a broader disability protection strategy.

Your Northwestern Mutual financial advisor can help identify potential gaps, evaluate how disability insurance fits within your broader financial plan, and determine whether your protection aligns with your current needs and future goals.

This article is for informational purposes only and does not constitute tax, legal, or investment advice. Consult your tax advisor or attorney for guidance specific to your situation.

Disability insurance policies contain some features and benefits that may not be available in all states. The ability to perform the substantial and material duties of your occupation is only one of the factors that determine eligibility for disability benefits. These policies also contain exclusions, limitations and reduction-of-benefits provisions. Eligibility for disability income insurance, additional policy benefits, and qualification for benefits, is determined on a case-by-case basis. For costs and complete details of coverage, contact your Northwestern Mutual Financial Representative.

Frequently Asked Questions

What disability insurance do high-net-worth people need?

Many high-net-worth individuals continue to depend on earned income to fund their lifestyles, business interests, and future goals. Because future earnings play an important role in wealth accumulation, protecting earning power can be a key part of a broader financial plan. Individual disability insurance can help address potential gaps in employer-provided coverage and protect a greater share of income if an illness or injury prevents someone from working. The question isn’t simply whether you have disability coverage but whether you have enough coverage to protect what you’re working to build.

Is employer disability insurance enough if I have a high income?

Employer-provided disability insurance can be a valuable foundation, but it often replaces only a portion of income and may not cover compensation such as bonuses, commissions, or partnership earnings. As income increases, the gap between what you earn and what employer coverage provides can grow significantly. Individual disability insurance can help supplement employer coverage and protect more of the income your lifestyle, business interests, and future goals depend on. A review of your coverage can help determine whether any income protection gaps exist.

How much of my income does group disability insurance actually replace?

Most group disability plans replace 50 percent to 60 percent of base salary, up to a maximum monthly benefit. Higher earners receive a much lower percentage of income replacement because benefit caps may limit coverage, and compensation such as bonuses, commissions, or partnership earnings may not be fully covered. As income grows, the gap between what you earn and what disability coverage provides can become larger than many people realize. Understanding how much income your current coverage would replace can help you identify potential gaps.

Can I buy individual disability insurance to supplement my employer coverage?

Yes. Individual disability insurance can help fill gaps in employer-provided coverage, which replaces only a portion of your income and often has benefit limits. Benefits from employer-paid disability plans are taxable, while benefits from an individually owned policy funded with after-tax dollars are received income-tax-free. Individual coverage also stays with you if you change employers. Your financial advisor can help determine whether your current coverage provides enough protection for the income, lifestyle, and long-term goals your financial plan depends on.

What is own-occupation disability insurance, and do I need it?

Own-occupation disability insurance is designed to pay benefits if you cannot perform the substantial and material duties of your regular occupation. Depending on the policy terms, you may still be eligible for benefits if you choose to work in another occupation.

For highly trained professionals and business owners whose income depends on specialized skills, the definition of disability can be just as important as the benefit amount. If your earning power relies on your ability to perform a specific occupation, own-occupation coverage is worth discussing with your financial advisor.

How does disability insurance help business owners?

Business owners often face risks that extend beyond personal income because their ability to work can directly affect the businesses they have built. In addition to helping replace personal income, disability insurance solutions can help cover ongoing business expenses, protect against the loss of a key employee, support a business ownership transition, and provide income protection for employees. Together, these solutions can help support business continuity, protect the people who depend on the business, and reduce the financial impact of an illness or injury.

There are several disability insurance tools that can support business owners:

Disability overhead expense insurance can help cover eligible business expenses, such as rent, utilities, payroll, and other overhead costs, if you’re disabled due to an illness or injury. Together, individual disability insurance and disability overhead expense insurance can protect both your family’s financial needs and the ongoing operation of your business.

Disability buyout insurance can help fund the purchase if a disabled owner’s share of a business when a buy-sell agreement is in place, helping support a smoother ownership transition and business continuity. Benefits are received income-tax-free, although premiums are generally not tax-deductible.

Disability key person insurance can help protect a business if a critical employee becomes unable to work, providing funds that can help offset financial disruption, recruit and train a replacement, or support other business needs during the transition.

Group long-term disability insurance can help business owners provide income protection for employees, supporting their financial well-being while strengthening recruitment and retention efforts.

These considerations make personalized review essential.

Does disability insurance protect my retirement and savings goals?

Yes. Disability insurance can help protect the income that supports retirement savings, wealth accumulation, and other long-term financial goals. If an illness or injury prevents you from working even for a year or two, a loss of income may affect not only current spending but also your ability to continue saving and investing for the future. Comprehensive disability coverage, including supplementing employer-provided coverage when appropriate, can help provide the income needed to support those priorities and help keep your financial plan on track.