Why Does Dave Mention That You Don’t Need Short Term Disability Insurance? (2026 Update) Is your paycheck protected? It’s a question that keeps millions of Americans up at night.
In the insurance world, agents will try to sell you a policy for every possible “what if”—including Short-Term Disability (STD) insurance.
But if you follow personal finance expert Dave Ramsey, you’ve likely heard his blunt advice: Skip it.
In 2026, with insurance premiums rising and the gig economy reshaping how we work, Dave’s advice is more relevant than ever. But why does he say you don’t need it? And is he right for your specific situation?
This guide breaks down the math, the philosophy, and the 2026 economic trends that explain why Dave Ramsey believes you are better off being your own insurance company.
The Core Philosophy: You Are the Insurance Company
To understand why Dave Ramsey hates short-term disability insurance, you have to understand the 7 Baby Steps.
Dave’s financial framework is built on moving from fragility to stability. Baby Step 3 is the game-changer here: Save 3–6 months of expenses in a fully funded emergency fund.
The Logic Breakdown
Dave argues that if you have an emergency fund, you have effectively self-insured against short-term income loss.
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What STD Covers: typically 3 to 6 months of lost income.
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What an Emergency Fund Covers: 3 to 6 months of expenses.
If you pay a premium for a policy that covers the exact same timeline as your savings account, you are paying for redundancy. Dave calls this “gimmick insurance”—products designed to transfer a risk you could easily handle yourself.
Dave’s Rule of Thumb: “If you can comfortably pay for the loss with your savings, don’t insure it. Only insure catastrophic risks that would bankrupt you.”
By The Numbers: The Math of STD vs. The Emergency Fund (2026 Data)
Let’s look at the financials. In 2026, the average cost of short-term disability insurance has ticked up alongside broader medical inflation.
The Cost of “Safety”
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Average Premium: 1% – 3% of your annual gross income.
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Average Income (US): ~$65,000 (est).
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Annual Cost: $650 – $1,950 per year.
The Payout Reality
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Elimination Period: Most STD policies have a 7–14 day waiting period before they pay a dime.
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Benefit Cap: They typically pay only 60% of your gross income.
Scenario: You get sick and miss 3 months of work.
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STD Payout: You wait 2 weeks, then get 60% of your pay for 10 weeks. You are still broke if you live paycheck to paycheck.
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Emergency Fund: You have access to 100% of your money immediately. You pay yourself your full budget.
2026 Economic Update: The HYSA Factor
In 2026, interest rates on High-Yield Savings Accounts (HYSAs) remain a critical tool.
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If you put that $1,500/year premium into a HYSA earning 4–5%, you aren’t just protecting yourself; you are building wealth.
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If you pay the premium to an insurance company and don’t get disabled, that money is gone forever.
Comparison: Short-Term Disability vs. Self-Insurance
| Feature | Short-Term Disability Insurance | Emergency Fund (Self-Insurance) |
| Cost | ~$60-$150/month (Sunk Cost) | $0/month (It’s your money) |
| Coverage | ~60% of Income | 100% of Expenses |
| Waiting Period | 7–14 Days | Immediate (0 Days) |
| Flexibility | Medical disability only | Car repairs, job loss, medical, etc. |
| Return on Investment | 0% (unless you claim) | 4–5% APY (Interest Income) |
| Dave’s Verdict | Avoid | Essential (Baby Step 3) |
The Exception: Why Dave Loves Long-Term Disability (LTD)
Don’t confuse Short-Term with Long-Term. Dave Ramsey is a massive proponent of Long-Term Disability (LTD) insurance.
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The Risk: If you are permanently disabled at age 35 and can never work again, you stand to lose $2–$4 million in lifetime earnings.
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The Solution: An emergency fund cannot cover 30 years of lost wages. LTD kicks in after 90 days (just as your emergency fund/STD runs out) and pays you until retirement age.
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The Strategy: Use your Emergency Fund to survive the first 90 days (the “elimination period”). Use LTD to survive the rest of your life.
By extending your LTD elimination period to 90 days (because you have cash savings), you can drastically lower your LTD premiums.
2026 Trends: Why This Advice is Vital Now
As we move through 2026, the insurance landscape is shifting in ways that reinforce Dave’s “self-insure” stance.
1. The Rise of the Gig Economy & Portability
Employer-sponsored STD plans are often tied to your job. If you are laid off (a common 2025-2026 risk), you lose that coverage instantly. An emergency fund travels with you, regardless of your employment status.
2. Stricter Claims Processes
Insurers are utilizing AI-driven claims processing more heavily in 2026. This has led to faster approvals for clear-cut cases but higher scrutiny for “subjective” claims (like back pain or stress), leading to more denials. Cash in the bank never denies your claim.
3. Pregnancy & Family Planning
A common counter-argument is pregnancy. “I need STD for maternity leave!”
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Dave’s Take: Pregnancy is not an emergency; it is a planned event (usually). He advises saving for the baby delivery and time off above your emergency fund rather than paying premiums for years hoping to “break even” on a maternity claim.
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2026 Context: Many states now offer Paid Family and Medical Leave (PFML), reducing the need for private STD policies for maternity even further.
Buyer’s Guide: How to Transition to Self-Insurance
If you currently pay for STD, don’t just cancel it today. Follow this safe transition plan:
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Check Your Savings: Do you have $1,000 saved? (Baby Step 1).
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Build the Moat: Aggressively save until you have 3 months of expenses in a liquid savings account.
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Secure LTD: Ensure you have Long-Term Disability in place (coverage for 5+ years or until age 65).
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Cancel STD: Once the savings are there to cover the gap, cancel the short-term policy.
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Redirect Funds: Take the money you were spending on premiums and add it to your debt snowball or retirement investing.
Frequently Asked Questions
Q: What if my employer offers Short-Term Disability for free?
A: If it is 100% employer-paid, take it! It’s a free benefit. Dave only advises against you paying for it. Just don’t rely on it as your only safety net since it disappears if you lose the job.
Q: Does Dave Ramsey ever recommend Aflac?
A: Generally, no. He categorizes Aflac and similar “supplemental” cancer/hospital indemnities as “junk insurance.” The math rarely works out in the buyer’s favor compared to saving the premiums.
Q: I have a chronic condition. Should I keep STD?
A: If you have a high likelihood of recurring issues and you cannot build an emergency fund fast enough, you might be the exception. However, insurers often exclude “pre-existing conditions” for the first 12 months, so read the fine print carefully.
Q: How much Long-Term Disability do I need?
A: Dave recommends a policy that covers 60–70% of your gross income. Ensure it is “Own Occupation” coverage (meaning it pays if you can’t do your job, not just any job).
Conclusion: Bet on Yourself
Dave Ramsey’s advice on short-term disability isn’t just about saving $50 a month. It’s about mindset. Buying STD says, “I don’t trust myself to save for a rainy day.” Building an emergency fund says, “I can handle whatever life throws at me.”
In 2026, financial resilience is about liquidity. Cash is king. By skipping the short-term insurance and funding your own safety net, you keep the profit that the insurance company would have made off you.
Ready to secure your income the right way?
Don’t guess at your coverage.
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Next Step: Review your pay stub this week. If you are paying for “STD” or “Short Term Dis,” calculate how fast you could save that money yourself.
How does short-term disability insurance work in California?
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