Disability insurance can replace some or nearly all of any income you might lose because you are very sick or badly injured. That sounds simple enough, but there are many types of disability insurance. Certain types of coverage are available to everyone:

Social Security - If you are basically unable to perform any job duties at all, you probably are eligible for disability payments from Social Security. But such payments are not very high and won't replace most of your lost income.

Note. Further, as much as 58% of all applicants for disability benefits are initially denied by Social Security. In addition, you are eligible for benefits only after you have been disabled for five months and if the disability is expected to last at least a year. Finally, any benefits you receive from Social Security are taxable.

Workers' Compensation - If you are injured or become sick on the job, you are eligible for benefits under your employer's workers' compensation insurance, which all businesses must have. However, the benefits you receive vary from state to state and on the level of your disability. In addition, the benefits are relatively low and won't adequately replace income for those who earn mid- to high-range salaries. Again, the injury or illness must be job-related, or substantially job-related.

Disability Coverage Through Your Employer - Many larger businesses offer disability insurance at somewhat reduced rates to their employees as part of a benefits package. However, these so-called group disability plans likely will have limits on the income they will replace (say no more than 60% of your salary) and have limitations on the time such benefits will be paid. Further, the benefits are taxable, and the coverage cannot be taken with you if you change jobs.