Disability Insurance Rates
Disability insurance replaces a portion of your income if you become temporarily or permanently disabled by illness or injury. Don’t make the mistake of thinking that disability insurance is only for people in high-risk jobs, such as window washers or race car drivers—everyone who depends on income from work to pay for expenses should have disability insurance.
Disability Insurance Options
| Consider the following six criteria to help you decide which disability insurance policy suits you best: | |
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Amount of Coverage
The coverage you receive usually depends on the extent of your disability. For instance, some policies require the policyholder to prove total disability in order to receive any amount of coverage. Other policies pay out a partial amount based on the extent of the policyholder’s disability. The specific amount of coverage is tied to the income you would ordinarily earn each year.
Period of Coverage
The period of disability insurance coverage has two components: the elimination period and the benefit period.
- Elimination period:
The amount of time you must wait between the time the disability occurs and the time your coverage begins. The longer you agree to wait, the lower your premiums will be. Elimination periods are typically specified in months. - Benefit period:
The length of time that the disability coverage applies after it begins. The most common benefit periods are two years, five years, or until age 65. The two-year period tends to be too short, since people with severe disabilities tend to be disabled for more than two years. Five years is better, and until age 65 is the best option. People older than 65 don’t qualify for disability insurance.
Residual Coverage
The residual coverage option means that even if you’re disabled and
losing at least 20% of your income but are still able to work part time,
you’ll still receive a portion of your benefit. Be sure to buy a policy
that includes residual coverage, since you need some protection from
partial disability as well as total disability.
Renewability
Buy a policy that can be renewed until you turn 65. The best type of
policies, called non-cancelable renewable policies, guarantee that your
premiums won’t increase until you turn 65. Guaranteed renewable policies
have premiums that the insurer can raise at any time.
Future Purchase Option
The future purchase option generally allows the policyholder to increase
the coverage amount every three years, up to a certain predetermined
limit, without the possibility of being turned down. This option makes
sense for those who anticipate an increase in their monthly expenses, as
well as for those who develop costly chronic conditions that result in
disability, such as diabetes.
Cost of Living Adjustment
The cost of living adjustment allows you to increase the amount of your
benefits while you’re disabled to keep pace with the rising cost of
living. Cost of living adjustments are usually limited to a
predetermined annual percentage, such as 5% of the policy’s total
benefits per year.
How Much Coverage Do You Need?
Deciding how much disability coverage to purchase is a personal decision
based on a variety of factors, including your family situation, your
savings, and the history of debilitating illnesses in your family. At
the very least, choose a coverage amount that will be sufficient to pay
for the expenses you expect to incur annually. To determine this figure,
determine the total amount of money you spend every month and multiply
by 12.
Disability Insurance Costs
Many employers provide employees with disability insurance in addition
to health insurance. But these policies often lack important options,
such as renewability and the cost of living adjustment, so be sure to
evaluate your employer’s policy to confirm whether you need to buy
additional, private disability insurance. Also, keep in mind that COBRA
does not allow you to continue your disability coverage if you leave
your job or undergo another COBRA-qualifying event.
Private disability insurance varies in cost based on age, occupation, health, coverage amount and policy options. The average cost ranges from $1,200–2,000 annually.
How to Buy Disability Insurance
Private disability insurance is not as easy to find and buy as other
types of insurance. As a result, you’ll most likely want to work with a
captive or independent agent with expertise in disability insurance.
Your health or life insurance provider can refer you to an agent who
specializes in disability insurance