Key Takeaways
- Several factors impact the cost of disability insurance, including your age, health, income and the type of coverage you choose.
- Generally, disability insurance premiums cost between 1% and 3% of your annual income.
- The younger and healthier you are, the less expensive coverage will be.
How Much Does Disability Insurance Cost?
On average, you can expect to pay between 1% and 3% of your annual income for disability insurance coverage. Because disability insurance protects your income if you can no longer work, the cost of disability insurance goes up as your wage increases.
Average Disability Insurance Costs
| Annual Salary | Yearly Cost | Monthly Premium |
|---|---|---|
| $40,000 | $400-$1,200 | $33-100 |
| $80,000 | $800-$2,400 | $67-$200 |
| $120,000 | $1,200-$3,600 | $100-$300 |
| $160,000 | $1,600-$4,800 | $133-$400 |
| $200,000 | $2,000-$6,000 | $167-$500 |
A good disability insurance plan will likely cost you 1-3% of your annual income. In other words, you pay one to three cents on every dollar you earn to insure 50 to 70 cents of every dollar of your gross income. This could easily turn out to be the most important insurance policy you own during your working years.
Factors Impacting Cost
Besides your income, there are many other factors that influence the cost of disability insurance, such as age, gender, health, occupation and location. You can also customize your coverage amount, benefit period and elimination period to adjust your premium amount.
Age
Your age is one of the most important elements in calculating your disability insurance premiums. Older people tend to pay higher premiums for coverage because the older you are, the more likely you are to become disabled.
How much a disability insurance premium goes up depends on the insurance provider, but it’s estimated that policy costs can increase up to 5% a year as a person ages. If you think you’re going to want disability insurance coverage, consider buying it as soon as possible rather than waiting until you’re older and more likely to need it.
Gender
Insurance companies also factor in a policyholder’s gender when determining disability policy cost. Women can pay up to 40% higher premiums than men for disability coverage.
There are a few reasons why women might pay more for their disability premiums. The historical data companies use to set premium prices shows that women more often become disabled and unable to work due to conditions including breast cancer, depression or autoimmune disorders. Disability claims filed by women also tend to last longer than those for men.
Charging women more for disability insurance coverage isn’t allowed in all states. Massachusetts passed legislation preventing insurance providers from factoring gender into coverage costs, and New York introduced a similar bill in its state legislature.
Health
Because disability insurance benefits pay out if you become disabled or injured, people who have pre-existing health issues usually pay higher premiums for their coverage. If you have conditions like chronic pain or hypertension, an insurance company might charge you more for your disability policy.
Lifestyle choices that can affect your health, such as smoking, can also cause your premiums to go up, according to licensed insurance agent Linda Chavez.
Providers can deny coverage to someone because of their health status. The Affordable Care Act’s rule that prevents insurers from excluding people with pre-existing conditions from health insurance policies does not apply to disability insurance policies.
Occupation
Workers with physically demanding or dangerous jobs may need disability insurance due to an increased risk of injury at work. However, because of this increased risk, insurers also increase premium costs for policyholders with these types of jobs.
Location
The state you live in can also impact how much you’ll pay for disability insurance. Some states tend to have more claims filed, and insurance companies might charge higher rates for policies in those states. Not all insurers do this, so consider shopping around for quotes from multiple providers to find the best rate.
Coverage Amount
When you purchase a disability insurance policy, you’ll be able to select how much of your income is covered by the insurance. A disability policy pays a percentage of the income lost during a period of disability, usually between 40% and 60%. The higher the benefit amount you select, the higher your premiums will be.
Benefit Period
The benefit period of a disability insurance policy affects how much you’ll pay for it. There are two types of disability insurance: short-term and long-term policies. The biggest difference between these two types is the length of the benefit period, or how long you’ll receive benefits for a disability claim.
With a short-term disability insurance policy, you’ll receive benefits for as little as a few weeks or up to a year. Long-term disability insurance provides benefits for an extended period of time, usually at least two years. Some long-term policies pay benefits for the rest of the policyholder’s working life (until retirement age).
Short-term and long-term disability insurance policies are usually comparable in price, but there can be some variation. If you choose a long-term policy with a benefit period of many years, you may pay higher premiums to ensure you have coverage for that long.
Elimination Period
The elimination period of a disability insurance policy is how long the policyholder must wait after becoming disabled before they can start receiving benefit payments. When you purchase a disability policy, you can choose an elimination period, usually between one week and one month for short-term policies and between 30 and 180 days for long-term policies.
The shorter your elimination period is, the sooner you can start replacing lost income if you become disabled. But policies with shorter elimination periods usually have higher premiums than those with longer waiting periods.
“If you wish to receive payments after a 30-day elimination period, your premiums would be much more expensive compared to a policy with a 180- or 365-day waiting period,” said Matt L. Schmidt, a licensed agent with over 18 years of experience in the insurance industry.
“Because of this, it’s extremely important to consider your personal financial situation before choosing a disability policy,” Schmidt told Annuity.org. “For those who have adequate savings, it may be a wise move to select a waiting period of 365 days or longer as you’ll experience significant savings on premiums over time.”
Additional Cost of Riders
Policyholders can customize their disability insurance with a variety of riders, or provisions in the contract that create extra benefits. Each of these riders typically comes at an additional cost. The most popular disability insurance riders are the non-cancelable rider, inflation protection rider and residual benefits rider.
Non-Cancelable Rider
With a non-cancelable rider, your insurer is required to let you renew your policy each year. The insurer also cannot change the premium amount you must pay when you renew.
Some financial experts consider a non-cancelable rider one of the most important riders you can add onto a disability policy. The provision ensures that your insurer can’t cancel your insurance coverage as long as you continue to pay premiums, and they can’t raise your premiums.
Inflation Protection Rider
An inflation protection rider, also known as a cost-of-living adjustment or COLA rider, helps your long-term disability benefits keep up with economic changes. This provision indexes your benefits to inflation, so as prices go up, so will the amount you receive in benefits. Usually, the inflation adjustments begin one year after you become disabled.
If you’re purchasing disability insurance at the beginning of your working life, say in your 20s or 30s, an inflation protection rider can be well worth the cost as you’re likely to experience significant inflation over the course of your career.
People who purchase disability insurance later in life are less likely to need this rider. If you get disability insurance at age 55, your policy will only cover you for the next 10 years anyway, so it might not be worth the extra cost of inflation protection.
Residual Benefits Rider
The residual benefits rider is designed for scenarios where your disability reduces your ability to work but doesn’t render you completely unable to work. In some cases, an illness or injury might limit the number of hours you can work per week.
If working limited hours would significantly impact your income, a residual benefits rider could be useful for your disability insurance policy. With this provision, you can collect partial benefits if you’re working part-time instead of full-time due to a disability. The benefit amount is determined based on how much you earn working part-time in relation to your full-time income.
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Frequently Asked Questions About Disability Insurance
About one in four people will become disabled during their working life, and most households cannot withstand the financial hardship of losing work due to a disability. Disability insurance can be worth the cost if you want to protect yourself and your family from losing income if you become sick or injured.
Premiums from private disability insurance policies cannot be deducted from your tax liability.
Disability insurance typically costs between 1% and 3% of your income each month.
Editor Samantha Connell contributed to this article.
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