Long-term disability insurance generally costs between 1% and 3% of your income, but it’s well worth the price. About one in four young people will miss a year or more of work before retirement age due to a disability, and only 37% of Americans have at least a month’s worth of income saved. A disabling condition can affect you for years or even for your entire life. We’ll cover the average cost of long-term disability insurance and the factors that influence individual rates, so you can budget for the expense.
Average Cost of Long-Term Disability Insurance
The following estimated ranges are for benefits that last until retirement with a 90-day elimination period for zip code 73301. All quotes were collected for applicants who are non-smokers in excellent health. Rates are for non-cancelable, own-occupation coverage.
|Monthly Cost for $3,000 in Monthly Benefits||Monthly Cost for $5,000 in Monthly Benefits|
|35-year-old female office worker||$101-$163||$168-$227|
|35-year-old female manual laborer||$240-$325||$400-$541|
|45-year-old male office worker||$102-$138||$170-$230|
|45-year-old male manual laborer||$236-$320||$394-$534|
Sample Quotes from Individual Long-Term Disability Insurance Companies
We compared quotes for $3,000 in monthly benefits from six insurance companies for a 35-year-old female earning $75,000 annually and living in zip code 73301. The benefit period is through retirement age (65) and the elimination period is 90 days. Rates are for nonsmoking applicants in excellent health and estimates are for own-occupation coverage.
|Company||Cost for Long-Term Disability for an Office Worker|
While cost is an important consideration when choosing a disability insurance provider, also research the features included with each policy, as well as the reputability of each company and the customer experience they provide. Some companies that charge higher premiums may include benefits that cost extra at other companies, for example.
Factors Influencing Cost
You’ll pay less for disability insurance if you buy a policy when you’re young. That’s because your likelihood of suffering a disability increases with age. Most individual disability insurers allow you to lock in your rates for life if you buy when you’re young and healthy.
Young men tend to pay lower premiums than young women, since women file more claims. But disability insurance rates increase faster with age for men than for women.
If you have a history of disabling conditions, such as arthritis or previous back injuries, you’ll pay more for disability insurance than if you were in excellent health. That’s because you have a higher risk of filing a claim in the future. If you smoke, you’ll also pay higher rates, due to your increased likelihood for certain illnesses. Some companies may ask about chronic disease in your family history, which can impact your rates.
Job and Hobbies
People who work in high-risk occupations, such as commercial truck driving or construction work, are more likely to become injured and file a disability claim. That’s why insurance companies generally charge higher rates for manual laborers or workers in other hazardous trades. If you’re an office worker, your rates will be less expensive. Similarly, if you engage in high-risk activities like skydiving or rock-climbing, your rates may be more expensive.
There are several policy choices that will impact your rates as well. These include:
- Own-occupation vs any-occupation coverage: Own-occupation coverage is more robust, so it tends to cost more. It covers you if a disability prevents you from working in your current job. Any-occupation coverage, on the other hand, only goes into effect if you can’t work any job because of your disability.
- Coverage amount: Insurers may limit your monthly benefits to 60% or 70% of your salary. The more coverage you purchase, the higher your premiums will be.
- Benefit period: Long-term disability policies typically come with benefit periods ranging from two years to until retirement or until recovery. Longer benefit periods come with higher premiums.
- Elimination period: This is the period of time you’ll have to wait between when you become disabled and when you start receiving benefits. The longer it is, the cheaper your premiums will be. Long-term disability plans typically come with 30-day or 90-day elimination periods. If you have short-term disability insurance, those benefits can cover you during the elimination period.
- Riders: Some policies include features like locked-in rates, annual cost-of-living increases, and premium suspension during unemployment, while other companies require you to add these features as endorsements. Some companies offer a wide selection of riders, including a residual benefits rider that provides partial benefits if you become partially disabled. The options you choose will impact the cost of your policy.
How to Save Money on Long-Term Disability Insurance
Long-term disability insurance can be costly, but there are a few ways you can save money on your monthly premiums:
- Buy when you’re young and healthy: If you buy a non-cancellable policy while you’re young, you’ll save money on disability insurance over the course of your life.
- Choose a longer elimination period: Selecting a 90-day elimination period over a 30-day elimination period is a great way to reduce your premiums. Just make sure you have enough in savings to cover three months without benefits.
- Choose a shorter benefit period: You may opt for a policy that goes until retirement instead of offering lifetime benefits, but you should avoid choosing a policy with a shorter benefit period, such as two years. Doing so leaves you at an increased risk of financial hardship.
- Opt for less coverage: If you think you can live on a tighter budget in the event that you become disabled, you can choose to only replace 40% or 50% of your salary, which will result in lower premiums.
- Get group benefits: Group rates tend to be cheaper than individual rates, so take advantage of long-term disability benefits offered by your employer. While the policy may not provide enough coverage or all the features you want, you can supplement it with an individual policy. If you’re self-employed, you can get affordable group disability coverage through The Freelancers Union.
What Is Long-Term Disability Insurance?
Long-term disability insurance is an agreement between a policyholder and insurance company, where the policyholder pays monthly premiums in exchange for a monthly payout that kicks in should the policyholder become disabled and unable to work. Long-term disability benefits may last as little as two years or as long as the life of the policyholder. Considering that one in four young people can expect to become disabled for at least a year before they reach retirement age, long-term disability insurance is well worth the cost.
Is Long-Term Disability Insurance Taxable?
Long-term disability insurance proceeds are only taxable if the policy is paid for by your employer. If you buy an individual long-term disability policy, the monthly benefits you receive in the event of a disability will not be taxable. If you contribute to premiums on a group policy offered by your employer, the portion of the benefits that you pay for will also not be taxable.
How Long Does Long-Term Disability Insurance Last?
Long-term disability insurance lasts as long as the benefit period listed on your policy, which is typically between two years and a lifetime. Short-term disability insurance, on the other hand, is intended to last two years or less.
What Medical Conditions Qualify for Long-Term Disability?
Long-term disability insurance can cover any disabling condition that is verified by a medical professional and prevents you from doing your job. Some common reasons for long-term disability claims include pregnancy, cancer, mental health issues, musculoskeletal diseases, and injuries.