A disability might be the last thing you’re worried about when it comes to insurance coverage, but 20-year-old workers have a 25% chance of developing a disability before they reach retirement age, according to the Social Security Administration.
Disability insurance is one option that can help financially if you become disabled and either can’t work or can’t work at the same level as before. We analyzed individual disability insurance policies to find the best disability insurance companies.
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What Is Disability Insurance And How Does It Work?
Disability insurance is an insurance policy that pays a portion of your lost wages if you become ill or injured and are unable to perform the main duties of your occupation.
You pay monthly premiums when you have disability insurance coverage. If you become ill or injured and can’t work, the insurance policy covers a percentage of your wages.
If you’re getting disability insurance through work, there’s usually a basic plan that the employer pays for and potentially the option to increase the benefit level at your own expense.
If you’re buying an individual disability insurance policy, you’ll generally have choices for the:
- Elimination period. The waiting period before disability payments start when you have a qualifying disability. Elimination periods generally range between 30 days and two years.
- Length of the benefit period. How long the insurance company will pay you when you’re disabled.
Elimination and length of benefit periods factor into how much you pay for long-term disability insurance.
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Types of Disability Insurance
Short-term and long-term disability insurance are available.
If you get workplace disability insurance you likely get both short- and long-term. Check your benefits material or ask your HR department for details about the employer’s disability insurance.
If you’re buying individual disability on your own:
- Short-term disability insurance is meant to last only a short time, such as one or three years.
- Long-term disability can last many years. You’ll have a choice of benefit length that will be either a number of years (such as five or 10 years) or to a certain age, such as “to age 65.”
How to Get Disability Insurance
Here are the main ways to secure disability coverage.
What Does Disability Insurance Cover?
Disability insurance typically covers a percentage of your wages or provides a flat monthly payment for a specified period of time after you begin to receive benefits.
If you’re buying disability insurance through work, ask your HR department what the definition of a “disability” is.
It’s important to examine the definition of “disability” when you buy an individual disability insurance policy. Individual disability insurance policies often have a choice of how “disability” will be defined, and you can upgrade to a more generous definition by buying a rider. The definition will affect your ability to get benefit payments. The typical definitions of a disability are “any occupation” and “own occupation.”
Any Occupation
You’ll receive monthly disability benefits if a sickness or injury prevents you from working in any occupation. This is the most restrictive definition of a disability.
For example, a shoulder injury might prevent you from doing the work of your own occupation but you could still do desk work for similar pay. In this case an “any occupation” disability insurance policy would not provide benefits.
Own Occupation
You are unable to perform the substantial and material duties of your own occupation. Some disability insurance policies will even pay a full monthly benefit even if you’re working in another occupation. This is the most generous definition for getting disability benefits.
Ask your disability insurance agent if an “own occupation” rider is available and if it allows you to get benefits even if you decide to work in a different job.
What Does Disability Insurance Not Cover?
A disability policy will contain a specific list of exclusions, which often include disability due to:
- War
- Pregnancy, except for complications from pregnancy
- Committing a felony
- Active participation in violence
- Intentional, self-inflicted injury
Also, disabilities that start while you’re incarcerated may be excluded from coverage.
How Much Does Disability Insurance Cost?
An individual long-term disability insurance policy costs about 1% to 3% of your annual salary, according to Life Happens, an industry-funded group that focuses on insurance education. For example, if you make $200,000 a year, individual disability insurance will likely cost $166 to $500 a month.
Typical pricing factors for disability insurance include:
Your occupation. Risky occupations will lead to higher disability insurance costs.
Your health. When you apply for individual disability insurance you usually must answer questions about your health history. Poor health, chronic illnesses and smoking will lead to higher rates.
Your age and gender. Waiting to an older age to buy disability insurance will increase your monthly cost, especially for men.
The definition of disability. Policies that use an “own occupation” definition will be more expensive than those with an “any occupation” definition.
The coverage levels of the policy. The length of the benefit period, the monthly benefit amount and the elimination period you select will all affect the cost.
How to Choose the Best Disability Insurance for Your Needs
Methodology
To find the best disability insurance companies, we analyzed long-term disability insurance policies based on the availability of the most robust benefits. Ratings are based on the following factors.
- Maximum monthly benefit (25% of score): Policies with high maximum benefits earned more points.
- Elimination period choices (25% of score): Policies offering shorter elimination periods earned more points.
- Length of benefit period by age (20% of score): Policies with an option for benefits to age 70 earned points.
- Length of benefit period by years (20% of score): Policies with an option for a 10-year benefit period earned points.
- Online quotes (10% of score): Points were given if online disability insurance quotes are available.
Disability Insurance Frequently Asked Questions (FAQs)
Sources
- Disability Benefits. Social Security Administration.
- Why Is Disability Insurance Important? Life Happens.
- The Basics About Disability Insurance. Social Security.
- Life Insurance & Disability Insurance Proceeds Q&A. IRS.
- Preparing for Disability; Financial Impact. Council for Disability Awareness.
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