I was diagnosed with multiple sclerosis and had to stop working in 2000. I receive $100 monthly which is not even near what my monthly salary was then so i don't think it was in replace of my wages.
The IRS considers any income in the form of compensation taxable. But it depends on your income, the provider or contributor of the premium of the insurance and insurer or the insurance company. See your own CPA for help.
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Insurance Law Lawyer
It usually depends on whether your benefit was paid for with pre- or post-tax dollars. Consult an attorney whose practice focuses on disability claims for a more definitive answer. They also likely will be able to secure for you a better settlement than the insurance company would otherwise offer. Remember that the insurance company is interested in a settlement for THEIR benefit, not yours.