27 May Cost of Disability Insurance

How Much is Disability Insurance Going to Cost Me?

According to the Council for Disability Awareness, one out of every four 20-year-olds will become disabled before hitting retirement age. This form of disability can be caused by a short-term illness or accident. These individuals will, however, be classified as disabled and will be unable to function for a period of time. That equates to 25% of new employees who have recently graduated from college and are beginning their working careers. If that doesn’t pique your interest, consider the following example. A healthy 35-year-old female has a 24% risk of being disabled for three months or longer during her working career, and 38% of those women would be disabled for five years or more.

In the same way, a healthy 35-year-old man has a 21% risk of being disabled for at least three months and a 38% chance of being disabled for five years or longer. Many Social Security Disability benefits for involuntary disability only compensate two-thirds of a person’s income for up to eight weeks, depending on the state of residence.

What Is the Cost of Disability Insurance? 

The cost of disability insurance is determined by your age, annual revenue, and form of work. The cost of the premium, like that of other forms of insurance, is determined by a risk-to-reward ratio. Disability insurance, whether short-term or long-term, typically costs 1 to 3 percent of the taxable gross income. To put this into perspective, an individual with a gross income of $100,000 would pay between $1,000 and $3,000 per year for Disability Insurance.

This implies the individual is under the age of 45 and works in a low-risk career field. On the high end, Disability Insurance premiums can cost up to 15% of your annual gross income. Even more so if you are over 45 and work in a high-risk career. Some examples of high-risk careers can be a construction worker on a high-rise building or an airline pilot. On the low end, if you are under the age of 30 and work in a mainly stationary position, such as a secretary or office manager, you can pay less than 1% of your annual gross income.

What is Disability Insurance? 

Disability insurance is an insurance policy that provides benefits to the policyholder to cover wages if the insured is unable to function due to sickness or injury. Disability insurance plans are divided into two types: long term and short term. Long-term benefits protect the policyholder for a longer period of time, usually two and a half years. While short-term plans are often referred to as temporary policies, as the insured is only out of work for a short period of time.

Who Requires Disability Insurance?

Who doesn’t need Disability Insurance, should be the real issue. For the most part, it is expected by both small business owners and employees. Many of these individuals live paycheck to paycheck or have a small savings account that would be easily exhausted if the person becomes impaired. Besides this, Social Security Disability does not include 100 percent of what an individual will earn when employed. This means that disability Insurance is usually required to provide gap compensation that reaches beyond what the government’s restricted time period will cover. Disability insurance offers the security that any working person or small business owner needs to feel safe and not have to worry about day-to-day expenses when recovering.

The good news is that there is no restriction on the number of workers to which a corporation can provide Disability Benefits. Disability insurance only covers injuries and diseases that are not linked to employment. As a result, if you break your leg while riding your bike with your kids, you will be paid for the time you are unable to function. However, if you fall off a ladder while operating on a power line, your Injury Insurance will not cover your time off. This is known as Worker’s Compensation. As a result, unless you work in a high-risk industry, the premiums are not dependent on the risks you face on the job, making this form of policy more affordable to both workers and employers.

What Coverage is Provided with Disability Insurance? 

Disability insurance is offered in both short-term and long-term plans, enabling companies and individuals to tailor it to their needs. Many states lack a requirement or compensation for women who are expecting a child. If they do have coverage, it can only be for four to six weeks. Short-term Disability is often set in place to cover maternity leave. This allows a woman to spend more time bonding with her daughter, healing, and adjusting to the new addition to the family.

For those who require some form of rehabilitation service or Employee Assistance Programs (EAP), Long-Term Disability policies can provide these services and more. These services are designed to help the disabled in returning to work at a quicker pace. Rehabilitation programs teach employees how to recover control of a disabled body part or compensate for a newly unusable body part by using other parts of the body. As a result, this policy would compensate for this service in order to offset the loss of potentially extended payments in total. Those in need of addiction or grief therapy, as well as other EAPs, will find long-term Disability plans helpful in paying for these services, enabling the person to return to work sooner.

Short-Term Disability Insurance:

Covers an individual who becomes disabled due to an illness or accident for 60 to 180 days, and in some cases up to a year. Although it is typically used for situations like accidents and maternity leave, it may also cover illness-related problems like time away for chemotherapy treatments. Short-term Disability plans usually protect 80% of your gross income during this period, enabling you to cover the majority of your monthly expenses.

Long-Term Disability Insurance:

Is used to pay up to 60% of a person’s gross income if they are injured and unable to do their job due to an accident or illness. The most popular application is for accident, but it may also be used to heal from a stroke, heart attack, or major surgery. Typically, the individual is deemed disabled for 180 days or more, and they will collect this insurance payment before they are eligible for retirement or reach the age of 65. To expand on the amount paid, a salaried employee can easily calculate his or her gross earnings because it is consistent from week to week. A company owner or a commissioned employee, on the other hand, has a variable salary. In these cases, the annual gross income is calculated using earnings statements, bank reports, and tax returns over a set period of time, usually six months to three years.

Cost of Disability Insurance

Before you begin looking for short term disability insurance, consult with your employer to see whether a package is available at work. Also, research the disability benefits available in your state to determine if you can factor anything like temporary disability insurance into your overall strategy. When comparing and contrasting disability plans, consider how much money you’ll need to replace if you can’t work and how long you’ll need to earn benefits. 

The estimated cost of disability insurance ranges between 1% and 4% of your taxable salary. Another rule of thumb is to plan to pay between 2% and 6% of your policy’s monthly benefit total in premium. Of course, depending on personal factors, work occupation, and policy preferences, you can pay more or less than these ranges.

Disability Insurance Rates According to Profession

The cost of individual disability insurance is heavily influenced by what you do for a living. Disability insurance providers classify workers into occupational classes in order to evaluate premium rates and benefits. These classes account for the hazards risk in a work environment. An additional factor is the claim history associated with certain occupations. 

Generally, insurance firms rate occupations on a scale of 1 to 5 or 6. Generally, a higher number on the occupation scale is associated with a less expensive insurance premium.

The two charts below illustrate the difference in long-term disability insurance premium rates for a 40-year-old making $65,000 per year and receiving coverage for five years, based on four occupational classes: 

Light Labor: skilled manual work in a lighter industry, like a mechanic, carpenter, or landscaper. 

Labor: classified as demanding or unskilled manual jobs with higher risks, like a bus driver, roofer, or builder.

Gender and Profession	Premium Cost$800/mo Benefit	Premium Cost$1,500/mo Benefit	Premium Cost$2,270/mo Benefit
Male, Light Labor	$23	$38	$58
Male, Labor	$29	$49	$74
Female, Light Labor	$29	$49	$74
Female, Labor	$36	$63	$96

Professional: described as office work with minimal risk of hazards, like an accounts or software engineer.

Technical: comparable to professional with some risk of hazards, like a salesperson or lab tech.

Gender and Profession	Premium Cost$1,100/mo Benefit	Premium Cost$2,000/mo Benefit	Premium Cost$3,300/mo Benefit
Male, Professional	$17	$30	$49
Male, Technical	$21	$38	$61
Female, Professional	$22	$40	$65
Female, Technical	$26	$49	$80

Disability Insurance Rates According to Age

When it comes to the expense of your insurance, one of the most important deciding factors is your age. Disability insurance becomes more expensive when you start getting older and are more likely to become disabled. According to some estimates, comparable policies will cost up to 5% more per year as an individual ages. As a result, it is better to buy while you are younger in order to get the best deals.

Here’s an example of how much more you’ll pay the longer you wait to buy insurance. The rates mentioned below are for men of various ages who work in technical jobs and earn $85,000 per year. Each policy offers a $4,300 monthly benefit for a duration of five years. 

• A 40-year-old would have to pay $82 per month. 
• A 45-year-old would have to pay $104 per month. 
• A 50-year-old would have to pay $129 per month. 
• A 55-year-old would have to pay $167 per month. 

The older you are, the more you will have to pay for benefits.

Disability Insurance Rates According to Gender

Women pay more for disability insurance than men (opposite when comparing life insurance). If all other variables are equivalent, women will pay up to 40% more for disability insurance than men. This is because women are more likely than men to suffer from illnesses that interfere with their jobs, such as breast cancer, autoimmune disorders, and depression. 

Women’s injury cases often appear to last longer than men’s. With all other variables being equivalent, women were quoted rates ranging from 25% to 33% higher in the two charts in the occupation section above.

Disability Insurance Rates According to Health

Your medical background would also have an impact on your premium rates, for better or worse. Insurers will evaluate the current state of health. The better your health, the less likely it is that you will become disabled, and vice versa. You will be asked about your family’s medical background, pre-existing health problems, and drugs you are taking during the underwriting process. 

You would almost definitely be asked to take a paramedical test as well. The test is similar to a physical examination. A technician can take your height, weight, BMI, pulse, and blood pressure. Anything outside the average, such as being overweight or having high blood pressure, would have a negative effect on your prices.

Tobacco use is well known to be detrimental to one’s health. Long-term tobacco use may result in long-term disabilities such as emphysema and cancer. As a result, applicants with a history of tobacco use will usually face higher premiums from disability insurers.

Disability Insurance Rates According to Location

Did you know that some geographical areas have higher rates of disability than others? 

Some states’ claim histories can affect the risk that their residents pose to insurance companies. As a result, residents of states with a higher number of disability insurance claims, such as California, would pay higher premiums than residents of less populous states, such as Wyoming. In certain parts of the world, a 50-year-old female technical worker earning $100,000 would pay $162 per month for a $5,000 monthly benefit that lasts five years. In Los Angeles, California, however, the same applicant will pay $199 a month, a 23 percent rise.

Disability Insurance Rates According to Benefit Amount

When deciding on benefits, you must consider how much you will need to survive on in the event of a disability with cost of your premium. The higher your policy’s monthly benefit, the higher your premium. It’s important to remember that disability insurance premiums are tax-free. As a result, if your benefit amount is about 60% of your pre-tax salary, you can receive disability benefits that are equivalent to your take-home pay. 

Here’s an illustration of how the benefit sum can affect the insurance premium. These rates are based on a 40-year-old male laborer making $50,000 per year. 

• $26 for a monthly benefit of $700 
• $43 for a monthly benefit of $1,300 
• $59 for a monthly benefit of $1,830

Disability Insurance Rates According to Benefit Period

You may specify how long a disability policy will pay benefits for. The longer you collect payments, the higher your premium will cost. Some plans may pay a monthly benefit for a set period of time, such as ten years. Others will pay you when you hit a certain age, which is normally 65. A few insurance providers provide lifetime coverage if the insured is disabled for the remainder of his or her life. 

Here’s an example of how your benefit period impacts your premium. These are the prices for a 45-year-old male career worker making $75,000 per year. This applicant has chosen a monthly benefit of $3,800. The monthly premium rates are as follows:

• Benefit period of 1 year: $46 
• Benefit period of 2 years: $56 
• Benefit period of 5 years: $73 
• Benefit period of 10 years: $86 
• Benefit period to age 65: $97 
• Benefit period to age 67: $107

What Should You Expect the Cost of Disability Insurance to Be?

By applying while you are young, living a healthy lifestyle, and carefully reviewing your coverage choices, you will reduce the amount you pay per month. When determining the cost of your disability insurance options, keep the following guidelines in mind: 

• 1% to 4% of your annual salary 
• 2% to 6% of your policy’s monthly benefit amount 

Final Thoughts

If you can find coverage within these parameters, that’s most likely your best option. Keep in mind that the numbers provided are just averages. Your coverage requirements may fall outside of these broad guidelines for a variety of reasons. However, that shouldn’t stop you from accepting an offer for disability insurance. After all, disability insurance could be the only way to preserve your standard of living in the event of a disability.