How Much Does Disability Insurance Cost?

One in four 20-year-old Americans will be disabled before they reach age 67, according to the Social Security Administration. This reality underscores the need for long-term disability insurance (LTDI) to replace income lost through injury or illness. Can everyone who qualifies for LTDI afford it?

Take a look at how LTDI works and find ways to make it more budget-friendly.

Understand the Average Cost of Long-Term Disability Insurance

Long-term disability insurance is paid out as a percentage of your monthly income after disability. Coverage usually amounts to between 50% and 70% of your overall salary. 

To calculate monthly payments, multiply your annual salary by the percentage and divide the results by 12. Yearly cost is determined by multiplying your premium rate by your annual salary.

Suppose you want to buy long-term disability insurance covering 60% of your income at a premium rate of 1%. Here’s what costs would look like across different salary ranges:

The formulae for these figures are:

• Monthly payment = (Annual salary / 60%) / 12
• Annual cost = Annual salary x 1%

PolicyGenius shows how premium rates change across age groups.

Factors That Affect Long-Term Disability Insurance Cost

What elements factor into the cost of long-term disability? 

Age

Older people are more likely to endure disabilities. As such, premiums get more expensive as policyholders age.

Gender

Fairly or otherwise, women are usually charged higher long-term disability insurance premiums because, statistically, they encounter more disabilities than men. 

Health

A person in good overall health pays less in premiums for disability insurance. Those with preexisting conditions or physical struggles may pay more (or be excluded from coverage).

Occupation

Certain jobs that require more physical activity incur higher risks of injury, which corresponds to higher premiums. People with passive positions tend to pay less.

Hobbies

Hobbies that demand higher exertions of physical activity — extreme sports, martial arts and scuba diving — are riskier than tamer pastimes and result in higher premiums.

Benefit Amount

Higher benefit amounts represent the possibility of greater payouts in case of disability. Premiums for enhanced coverage are more expensive than those for lower insurance.

Benefit Period

Long-term disability insurance generally costs more than short-term policies because benefits are paid over a longer period. 

Elimination Period

The elimination period dictates how long a patient must wait for payouts to start after getting injured or becoming disabled. Elimination periods of 90 days are the most common, but they can run anywhere from 30 to 180 days. Shorter elimination periods result in more expensive premium payments.

Although a longer elimination period may seem cheaper, that’s not necessarily the case. The risk of medical expenses during extended waiting times could consume the money you save on premium payments. Most insurers view 90 days as a fair arrangement.

Any Occupation vs. Own Occupation

A concept unique to disability insurance is the definition of disability. It’s divided into two terms: any occupation and own occupation.

Any occupation refers to the policyholder’s complete inability to perform any kind of job for which they’ve been reasonably educated and trained. If you can still work in a field other than the one that caused your injury, any occupation insurance can’t apply to you. Own occupation insurance covers your disability even if you can work in some way apart from your normal workplace.

Any occupation insurance is more affordable because the criteria for covered disabilities are more precise. However, more expensive own occupation insurance offers a broader spectrum of coverage that may justify the extra premium cost.

Riders

A rider is an amendment that adjusts policy terms or coverage for certain special provisions or unique circumstances. Some common riders attached to long-term disability policies include:

Guaranteed Renewable Rider

This provision ensures that the insurer will not stop or refuse renewal of a policy as long as the policyholder makes timely premium payments.

Inflation Protection Rider

This agreement allows for occasional payout increases to keep up with the rising cost of living. The increase is usually at a fixed rate or calculated in light of the consumer price index.

Residual Benefits Rider

This rider pays partial benefits if a disability or injury results in a marked reduction of income. It works as a buffer between pre- and post-injury compensation to make up for losses.

Is Long-Term Disability Insurance Worth the Cost?

The answer hinges on several factors, including those addressed above. Your financial situation and circumstances also matter. A policyholder with multiple passive income streams or sizable savings might have no problem covering disability expenses, so insurance may be unnecessary. 

Additionally, jobs that pose little physical risk may not be enhanced with LTDI. However, if you earn a high income through your regular job, have little or no savings or work in a high-risk occupation, LTDI can be beneficial. 

How to Save Money on Disability Insurance

Here are steps you can take to make LTDI more economical.

Compare Rates from Multiple Insurance Providers

Research which insurers offer the best LTDI coverage for your dollar. Determine the kind of coverage you need, find providers, review coverage details and strike a balance between coverage depth and affordability. 

Choose a Longer Elimination Period

Consider waiting to initiate coverage after your injury to afford your premium. Ninety days may make more sense than 30 or 60. As mentioned previously, elimination periods longer than 90 days may be impractical for your budget.

Opt for a Limited Payment Duration

You can choose to end benefits after a certain time, like five or 10 years, to make premiums more affordable. It may be possible to end them even sooner.

Consider a Group Disability Insurance Plan

Many employers offer LTDI as a part of their benefits packages. Group plans can make underwriting simpler. A few might have matching or partial payment of premiums by your employer.

Bundle Disability Insurance With Other Policies

Some carriers may offer discounts on LTDI premiums when they’re bundled with life, health or other policies.

Negotiate for Discounts or Special Offers

Some underwriters offer discounts for members, like those in trade associations or unions. They may also provide discounts for paperless billing, automated premium payments, military members, positive credit histories or customer loyalty. 

Maintain a Healthy Lifestyle to Lower Premiums

Perhaps the simplest way to afford LTDI coverage is by keeping a healthy lifestyle. Quit smoking, join a wellness group, track daily exercise and document your health profile. 

Find the Best Disability Insurance From Benzinga’s Top Providers

Here are some of Benzinga’s most recommended providers of long-term disability insurance. 

Find More Ways to Control Disability Insurance Costs

Long-term disability insurance is a crucial vehicle for sustaining income through difficult times. Talk to an agent or financial expert for strategies to keep premiums affordable.

Frequently Asked Questions