How Much Does Disability Insurance Cost? How It Can Save Your Life

Disability insurance is a type of insurance that pays you a portion of your income if you become unable to work due to an illness or injury.

It can help you cover your essential expenses and maintain your lifestyle while you recover or adjust to your new situation.

A disability insurance coverage in how much disability insurance cost | Photo courtesy: Finsol
Disability insurance usually costs between 1% and 3% of your annual pre-tax salary, depending on several factors, such as your age, gender, health, occupation, income, and policy features | Photo courtesy: Finsol

But how much does disability insurance cost? And is it worth it?

You might think that disability insurance is too expensive or unnecessary, especially if you are young, healthy, and work in a low-risk occupation.

However, the truth is that disability insurance is more affordable and important than you might realize.

In this article, we will explain how disability insurance works, how much it costs, and why you need it. We will also share some tips on how to find the best disability insurance policy for your needs and budget.

How Disability Insurance Works

There are two main types of disability insurance:

  • Short-term
  • Long-term

Short-term disability insurance covers you for a few months, usually up to one year, if you are temporarily unable to work due to an illness or injury. It typically replaces 60% to 70% of your base salary, up to a cap, such as $10,000 per month.

Long-term disability insurance covers you for a longer period, usually until you recover, reach a certain age, or retire, if you are permanently unable to work due to an illness or injury. It typically replaces 40% to 60% of your base salary, up to a cap, such as $10,000 per month. Some long-term policies also offer additional benefits, such as training to return to the workforce or cost-of-living adjustments.

READ MORE: How Long Can You Stay on Social Security Disability Benefits? A Complete Guide

How Much Disability Insurance Costs

The cost of disability insurance, also known as the premium, depends on several factors, such as:

  • Your age

The older you are, the more likely you are to become disabled, and the more you will pay for disability insurance.

  • Your gender

Women are more likely to become disabled than men, and they tend to live longer, so they pay more for disability insurance.

  • Your health

The healthier you are, the less likely you are to become disabled, and the less you will pay for disability insurance. If you have any pre-existing conditions or risky habits, such as smoking, you will pay more for disability insurance.

  • Your occupation

The riskier your job is, the more likely you are to become disabled, and the more you will pay for disability insurance. For example, a construction worker will pay more than an accountant.

  • Your income

The higher your income is, the more benefits you will need to replace it, and the more you will pay for disability insurance.

  • Your policy features

The more generous and flexible your policy is, the more you will pay for disability insurance. For example, a policy that has a shorter waiting period, a longer benefit period, a higher benefit amount, and more riders (optional features) will cost more than a policy that has the opposite.

Photo courtesy: Canvas

DID YOU KNOW?

According to Policygenius, a leading online insurance marketplace, disability insurance usually costs between 1% and 3% of your annual pre-tax salary.

Another rule of thumb is that you should expect to pay between 2% and 6% of your policy’s monthly benefit amount in premium.

For example, if you make $50,000 a year and want a policy that pays you $3,000 a month, you can expect to pay between $500 and $1,500 a year, or between $42 and $125 a month, for disability insurance.

Of course, these are only estimates, and the actual cost of disability insurance will vary depending on your individual situation and the policy you choose. The best way to find out how much disability insurance costs for you is to compare quotes from different insurers and see what they offer.

Why You Need Disability Insurance

You might think that you don’t need disability insurance because you have other sources of income or protection, such as:

  • Your savings: You might have enough money saved up to cover your expenses for a few months, but what if your disability lasts longer than that? According to the Council for Disability Awareness, the average long-term disability claim lasts for almost three years. Do you have enough savings to last that long?
  • Your spouse’s income: You might rely on your spouse’s income to support you if you become disabled, but what if your spouse also becomes disabled, loses their job, or passes away? How will you cope with the loss of income and the increased expenses?
  • Your government benefits: You might qualify for government benefits, such as Social Security Disability Insurance (SSDI) or workers’ compensation, if you become disabled, but these benefits are not guaranteed, and they are often insufficient. For example, the average monthly SSDI benefit in 2021 is only $1,277, and workers’ compensation only covers work-related injuries and illnesses.
  • Your employer’s benefits: You might have disability insurance through your employer, but these benefits are usually limited, taxable, and non-portable. This means that they may not cover enough of your income, they may reduce your tax benefits, and they may end if you leave or lose your job.

The bottom line is that none of these sources of income or protection can replace disability insurance, which is the only way to ensure that you have a reliable and adequate income if you become disabled.

Disability insurance can help you:

  • Pay your bills, such as your mortgage, rent, utilities, car payments, and credit card debts.
  • Cover your essential expenses, such as your food, clothing, transportation, and medical care.
  • Maintain your lifestyle, such as your hobbies, entertainment, travel, and education.
  • Save for your future, such as your retirement, college, or emergency fund.
  • Protect your family, such as your spouse, children, parents, or other dependents.

In short, disability insurance can give you peace of mind and financial security, knowing that you can still support yourself and your loved ones if you become disabled.

READ MORE: Why Disability Insurance Matters More Than You Think

How to Find the Best Disability Insurance Policy

Finding the best disability insurance policy for your needs and budget can be challenging, but not impossible. Here are some tips to help you:

  • Shop around: Compare quotes from different insurers and see what they offer in terms of coverage, cost, and service. You can use online platforms, such as Policygenius or Breeze, to get free and personalized disability insurance quotes in minutes.
  • Work with a licensed agent: A licensed agent can help you understand your options, answer your questions, and guide you through the application process. You can find a licensed agent through Policygenius or Breeze, or through your employer, union, or professional association.
  • Choose the right policy features: Choose the policy features that suit your needs and preferences, such as the waiting period, the benefit period, the benefit amount, and the riders. You can use a disability insurance calculator, such as the one from Policygenius, to get coverage recommendations and cost estimates.
  • Review your policy regularly: Review your policy at least once a year, or whenever you have a major life change, such as a change in income, occupation, health, or family status. You may need to adjust your coverage, switch your insurer, or add or remove riders to reflect your current situation.

RELATED SEARCHES: Top 10 National Disability Organizations You Should Know About

Conclusion

Disability insurance is a type of insurance that pays you a portion of your income if you become unable to work due to an illness or injury.

It can help you cover your essential expenses and maintain your lifestyle while you recover or adjust to your new situation.

Disability insurance usually costs between 1% and 3% of your annual pre-tax salary, depending on several factors, such as your age, gender, health, occupation, income, and policy features.

Disability insurance is more affordable and important than you might realize, as it can give you peace of mind and financial security, knowing that you can still support yourself and your loved ones if you become disabled.

To find the best disability insurance policy for your needs and budget, you should shop around, work with a licensed agent, choose the right policy features, and review your policy regularly.

Leave a Comment