There are many types of insurance policies worth considering, both for individuals and businesses. Accordingly, it can be hard to choose which selection of policies will best protect you in the event of a financial emergency.

One commonly considered policy is disability insurance, which has the power to protect you if you’re suddenly unable to work and earn a living. But how exactly does this insurance work? And is it really necessary for most people?

The Basics of Disability Insurance

Disability insurance functions like most types of insurance. You’ll pay a monthly (or other regular) premium in return for insurance coverage. Then, if you’re ever disabled in a way that prevents you from working, the insurance policy will cover a portion of your monthly income. Oftentimes, this will compensate you for a specific percentage of your lost wages; for example, you may earn 60 to 80 percent of what you earned before your disability insurance.

As you might imagine, disabilities come in many forms. If you suffer from any kind of condition, injury, or illness that prevents you from working, you may be considered disabled. For example, if you’re paralyzed in a car accident and no longer able to handle basic tasks, your disability insurance policy will almost certainly kick in. However, you may also be considered disabled due to less traumatic conditions; for example, if you suffer from arthritis or chronic back pain, you may also qualify for disability insurance.

It’s also worth noting that you may purchase short-term and/or long-term disability insurance. As the names suggest, these policies cover different types of disabilities. If you’re unable to work for a temporary period of time, like 3 to 6 months, your short-term disability insurance will apply. Long-term disability insurance, by contrast, may cover you for a period of many years, or even up to the age of 65.

Sponsored Policies, SSDI, and Individual Policies

You may work for an employer who offers disability insurance benefits to you as part of a group. In this scenario, you may be enrolled in a disability insurance policy without having to pay monthly premiums, or with a reduced rate. These policies can be valuable, but they offer you limited choice; it’s also possible to lose coverage if you no longer work for this employer.

If you pay social security taxes, you may also qualify for Social Security Disability Insurance (SSDI), which is covered by the United States federal government. However, it’s extremely difficult to qualify for SSDI; you must fulfill many criteria before receiving payments, and not all disabled people will be formally considered “disabled” by the SSA.

For many people, the best path is to purchase an individual policy.

The Perks of Disability Insurance

There are many perks to getting disability insurance, including:

• Financial protection. The most obvious benefit is financial protection in the event that you’re disabled—and disabling events are more common than you might think. According to the Social Security Administration, about 25 percent of people in their 20s will become disabled before their retirement. If you’re disabled and unable to work, you’re still going to face ongoing expenses like housing and groceries—and you might also be responsible for steep medical bills. Without a steady income to help you offset costs, you might be in a tight financial position. With disability insurance in place, you can receive much of your usual income for as long as you’re unable to work.

• Protection for your family. The benefits are even more important if you have a family to protect. If you’re the primary earner in your family, disability insurance is a practical must.

• Peace of mind. Having disability insurance also gives you peace of mind. You don’t have to worry about losing your income due to an illness or injury you can’t prevent.

Risks and Individual Susceptibility

It may seem like disability insurance is designed for people most vulnerable to disability. But the fact is, everyone is vulnerable to disability. You may not be at high risk for a stroke or arthritis, but you still have a chance to acquire these conditions—and there’s always the possibility that you could be involved in a freak accident that prevents you from working.

Additionally, if you’re purchasing an individual policy, the underwriting process will set your premiums according to your risk profile. In other words, the lower your risk of facing a serious disability, the lower your premiums are going to be; this incentivizes people with a lower risk profile to purchase disability insurance.

Is Disability Insurance Right for You?

Disability insurance isn’t a strict requirement in most cases, but it can benefit the majority of working people. Shop around with different disability insurance providers, and try to find a policy that best suits your individual needs.