There’s a stat that Wallis Wilkinson Tsai dropped in our conversation that I haven’t been able to stop thinking about.

By the time you’re in your early 50s, your odds of a new cancer diagnosis are 1 in 35. And beyond cancer, 1 in 4 people in their 50s and early 60s will have some physical or medical condition that limits their ability to work. We’re not talking about retirement. We’re talking about the years when most of us are still deep in our careers, still building savings, still figuring out the plan.

So what happens to your income if something sidelines you?

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The tax trap hiding in your benefits portal

Most workplace disability plans look pretty reasonable on paper. Yours might say it covers 60% of your income, and you think: okay, I’m not thrilled about a pay cut, but I could manage. Here’s what the paperwork doesn’t tell you.

Your employer is almost certainly paying those plan premiums themselves — so they can claim the tax deduction. The catch? That means any benefits you collect are taxable income to you. So your 60% becomes more like 40% once you account for taxes you still owe.

For most people, a 40% reduction in take-home pay for any significant stretch of time isn’t just uncomfortable — it’s a real financial crisis.

And the other thing most people don’t know: if you leave your job, the coverage almost certainly doesn’t come with you.

That’s exactly what Wallis and I dug into in part two of our insurance series, and it’s the episode I wish someone had sat me down for years ago.

Why an individual policy changes the math

When you own a disability policy yourself and pay the premiums with your own after-tax money, the benefits are completely tax-free. Every dollar of that monthly benefit is yours, no strings attached.

There’s also something else Wallis mentioned that I found really compelling: an individual policy gives you freedom. It’s not tied to your employer, so you’re not stuck at a job because you can’t qualify for coverage elsewhere. And many policies give you the option to increase coverage later without re-qualifying medically — meaning the sooner you lock something in, the more options you have down the road.

Pick your benefit period carefully

Disability policies come in different time windows — 2 years, 5 years, 10 years, or through a chosen retirement age. Longer coverage costs more. Here’s the reality check: the average disability leave is just under three years.

Wallis’s practical advice: if the full-career plan doesn’t fit your budget, start with at least two years. Even two years of coverage means you’re not dealing with a health crisis and a financial crisis simultaneously. You have time to understand what’s happening, figure out your options, and make a plan — instead of panicking about your bank account while also going through treatment.

One thing that doesn’t get said enough: you can’t extend your benefit period once you’re on claim. The plan you choose is what you’ve got. So think it through before you need it.

If you’re a business owner, pay attention here

This is the part that tripped up a few people in Wallis’s client stories. If you’ve worked with a great tax advisor to minimize your taxable income — which is completely legal and often very smart — just know that disability carriers underwrite you based on what you reported. Low taxable income means a lower benefit. Wallis put it plainly: if you claimed you made $5, your disability benefit is based on $5.

This doesn’t mean you shouldn’t minimize your taxes. It means you should have a conversation with a financial advisor before you apply for a disability policy, so you know exactly what you’d actually be covered for.

The personal reason this matters to Wallis

One of my favorite moments in this conversation was when Wallis shared why she got so serious about this stuff in the first place. In her late 30s, six different friends were diagnosed with breast cancer. That was her wake-up call. Now, every time she goes in for preventive care, she says she feels better knowing she’s covered — that if the result came back the wrong way, it wouldn’t also mean financial disaster.

That’s what insurance is supposed to do. Not solve every problem, but take one enormous thing off the table so you can deal with what’s actually in front of you.

What to do this week

Go look at your workplace disability plan. Actually read it. Find out what percentage of your income it covers, and whether that benefit is taxable. If you’re a business owner, flag the taxable income issue before you apply for anything. And if you want someone to just look at your plan and tell you what you actually have, Wallis’s team at AboveBoard Financial does that for free. No sales pitch. Just clarity. You can reach them at aboveboardfinancial.com.

Wallis Wilkinson Tsai is the founder of AboveBoard Financial, specializing in life, disability, and long-term care insurance for individuals, families, and business owners. She spent over 10 years on Wall Street, including at Goldman Sachs, before starting her own firm. She also happens to have a deeply personal reason for caring about this stuff, which she shares in this episode.

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