The cost of an individual disability policy can vary greatly depending on your age, health, gender, occupation, benefit period, benefit amount, waiting period, and policy riders. A general rule is that it will cost between 1 and 3% of your annual salary.
Factors That Determine Long-Term Disability Costs
Age: The younger you are when you buy disability insurance, the lower your premium rates will be. That’s because as you age, your health declines and you become more likely to suffer a disability or illness. You can lock in the rates for life when you buy disability insurance when you’re healthy.
Health: The unhealthier you are, the more expensive your premiums will be. People with a history of back injuries, arthritis, and asthma will likely pay higher premiums.
Gender: Men pay less than women for disability insurance because more women file claims than men.
Occupation: Hazardous jobs like working with heavy equipment or mold remediation will likely pay more than someone who has a desk job.
Benefit period: The length of time you can receive benefits. For short term disability this will typically be 6 months or less. For long term disability it could range from two years to retirement, or until you recover from your disability. The longer your benefit period, the more expensive it will be.
Benefit amount: The amount you receive each month when you can’t work. It should be about 60% percent of your monthly salary. A higher monthly benefit will be more expensive than a lower monthly benefit.
Waiting period: Also called the elimination period. It’s the amount of time after you’re disabled until you can start receiving benefits. This amount of time usually will be shorter for short term disability and longer for long term disability. The shorter the elimination period, the more expensive it will be.
It’s important to know that the benefit you receive from an individual policy is usually NOT taxed because you typically will pay with after tax dollars. If you have a group policy and your employer pays for it, the benefit will be taxable.
The Bottom Line
There are many factors that determine the cost of an individual disability insurance policy. The younger, healthier, and less risky job you have, the less expensive your policy will be.