Does It Make Sense to Have Disability Insurance After Age 65?

While age 65 is traditionally associated with retirement, more individuals are choosing to remain in the workforce beyond this age. This shift raises questions about financial planning, especially regarding income protection from unexpected disability. Though often considered for younger workers, disability insurance’s relevance for those over 65 requires closer examination.

Working and Income Beyond 65

More Americans are extending their careers past age 65. Nearly one in five adults over 65 now holds a job, a figure that has climbed steadily over recent decades. This trend is driven by financial factors like insufficient savings and rising living costs, alongside a desire for continued engagement. Many individuals find satisfaction and mental stimulation in their work, making extended careers both feasible and attractive.

The financial landscape has evolved, with fewer traditional pension plans and greater reliance on 401(k)s and similar self-funded retirement accounts. Continuing to work allows for additional contributions and compounded growth in these accounts, further strengthening financial security. For those born in 1960 or later, the full retirement age for Social Security has increased to 67, making continued employment a strategic choice for maximizing benefits. This sustained reliance on earned income means that a disability, even in later working years, can still pose a substantial financial challenge.

Disability Insurance Availability for Older Workers

Obtaining disability insurance after age 65 involves unique considerations for availability and policy terms. Most individual and group long-term disability policies have benefit periods extending up to age 65 or the Social Security normal retirement age (currently 67). This means that new policies purchased at or after age 65 may have significantly shorter benefit periods, often limited to a specific number of months rather than years, such as 12 to 24 months.

While some insurers offer extensions or specific policies for older workers, options are generally more restrictive. The definition of disability also varies; “own occupation” definitions (inability to perform one’s specific job) often transition to “any occupation” definitions (inability to perform any suitable job) after an initial period, which is more challenging to meet. Premiums for disability insurance increase with age, reflecting the higher likelihood of disability in older populations. Group disability insurance through an employer may still be available, though coverage amounts might be lower and benefit periods shorter compared to policies for younger employees.

Evaluating the Need for Coverage

Evaluating the need for disability insurance after age 65 requires assessing personal circumstances. A primary consideration is reliance on current earned income. If a significant portion of living expenses is covered by wages, and a disability would severely impact this income, then protection may be warranted. Analyzing monthly expenses, including housing, food, transportation, and healthcare, is a crucial step.

Existing financial resources, such as savings, investments, and other assets, play a significant role. Substantial liquid assets could potentially cover living expenses during a period of disability, reducing the immediate need for insurance. Other income streams, including pension or Social Security retirement benefits, should also be factored in. While Social Security retirement benefits commence at full retirement age, they may not fully replace earned income.

Health status and pre-existing conditions can affect eligibility for new policies and premium costs, potentially making private coverage expensive or unavailable. Finally, employer-provided benefits like sick leave or short-term disability should be reviewed to understand existing protections before considering additional private insurance.

Other Income Protection Strategies

If private disability insurance is not feasible or necessary for individuals over 65, alternative strategies can help protect income during a disability. Social Security Disability Income (SSDI) provides benefits to eligible workers unable to engage in substantial gainful activity (SGA). While SSDI benefits automatically convert to retirement benefits at full retirement age, individuals over 65 with limited income and resources may still qualify for Supplemental Security Income (SSI), which is a needs-based program. For 2025, the SGA limit for non-blind individuals is $1,620 per month.

Personal savings and investments serve as a significant self-insurance mechanism. Maintaining a robust emergency fund, ideally covering several months of living expenses, can provide a financial cushion during periods of income disruption. Investment portfolios can also be structured to generate passive income or to be drawn upon if needed.

Employer-provided benefits, beyond formal disability insurance, may include paid sick leave, paid time off (PTO), or other informal support offering short-term income protection. Long-Term Care (LTC) insurance, distinct from disability insurance, addresses caregiving costs for chronic conditions or disabilities preventing independent living. Unlike disability insurance, which replaces lost income, LTC insurance covers expenses for services such as nursing homes, assisted living, or in-home care.