How Much Does Long Term Disability Insurance Cost?

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Recent studies indicate that the average working-class American has a one-in-four likelihood of suffering a disability which will take more than 90 days. This is quite a high probability, that in the course of your entire career, one out of every four persons you know might suffer an incident or accident which will disable him for more than three months.

For most people, this might not be something to lose sleep over. But, this is just an average statistic. In reality, a lot of people do experience suffering a disability which causes them loss of income for longer than three months. Some are even crippled for the rest of their lives. This makes it so much more important to plan ahead for long term disability income in the event that it does happen.

The Cost Of Disability

On average, the cost of a long-term disability insurance policy is around 1-3% of a person’s yearly income. A long-term disability insurance is one of the most cost-effective forms of income protection. Most insurance companies charge a monthly premium of as low as USD$25 up to as much as USD$500 per month.

Here are some sample monthly premium computations:

For a person with an annual salary of at least USD$30,000, the annual cost of disability insurance would range from USD$300-900. This would entail a monthly premium of between USD$25-75.

For a person with an annual income of, at least, USD$50,000, the yearly cost of disability insurance will be between USD$500 and USD$1,500. The monthly premium for this would be from USD$60-125.

For a person with a yearly salary of, at least, USD$100,000, the annual cost of disability insurance would range from USD$1,000-3,000. This would entail a monthly premium of from USD$83 to USD$250.

For a person with a yearly income of, at least, USD$150,000, the annual cost of disability insurance would be between USD$1,500 and USD$4,500. The monthly premium for this would be from USD$125-375.

For a person with an annual income of, at least, USD$200,000, the yearly cost of disability insurance would range from USD$2,000-6,000. The monthly premium for this would be from USD$166-500.

This is just a simplified presentation of the ranges of premiums you’ll have to pay for long-term disability insurance, depending on your annual income. In reality, though, the insurance company will be taking into account several other factors and variables other than your annual salary. There’s a different way for computing short term disability insurance premiums.

Factors In Computing Premiums

Insurance companies factor in a lot of things when they compute for the monthly premium that they’ll charge you for taking a long-term disability insurance. This is understandable because they’re the ones taking the risk of covering you for so much by taking your monthly premiums. Here are some of those factors:

  • Age – Your age is the first thing that will be taken into consideration when you apply for a long-term disability insurance. In most cases, it follows the same rules as they do with life insurance. The older you are, the higher your premiums will be. You can be sure that the premiums you’ll be paying if you get a disability insurance today will be much lower than if you’re going to get it next year or two years from now.
  • Health – The next is your health. As a general rule, the healthier you are, the lower your monthly premiums. You’re going to fill out a form when you take a long-term disability insurance. On that form, there’s going to be a check-list of your personal habits which might be deemed detrimental to your health such as the number of years you’ve been smoking and number of packs a day.
  • Coverage – Another important variable which has a significant impact on the cost of your monthly premiums would be the coverage you want for your long-term disability insurance. This isn’t the retirement income you’re going to receive from your pension plan, but the idea is quite similar. This is basically the monthly income that you’d want to receive if you become disabled and out of gainful employment.
  • Period for receiving benefits – Another factor which will have a significant impact on the computation of your monthly premiums would be the benefit period. Simply put, the benefit period is the number of years you’d want to receive a monthly disability income. For how long would you want to be receiving a monthly check as your disability pay? Again, the longer you want to be receiving disability income, the higher will be your monthly premiums.
  • Period for waiting – Another thing that’s factored into the computation of your monthly premiums is the waiting period. This basically refers to the period between the day you suffer a disability and the date when you start receiving your monthly disability check. In the case of waiting periods, the longer you’re willing to wait, the lower your monthly premiums.
  • Occupation and Location – Other factors which are weighed into the computation of your monthly premiums are your occupation and location. If you’re into hazardous activities, that’s going to push your premiums up. Location affects the premiums in a different way. If you live in a state where more people file claims, then you’re more likely to be charged higher monthly premiums.

Some industry analysts come up with a list of the different long-term insurance policies for long-term disability and their various advantages and disadvantages.

Paying For Disability Pay

What attracts most working-class people who take a long-term disability insurance is the idea of being protected in the event that something happens to you, and you become sidelined from having a means of livelihood. It can be a scary thought, and the assurance that you’ll be receiving a monthly disability income is something that a lot of people are willing to pay for.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.