How are long-term disability insurance rates calculated?

How are long-term disability insurance rates calculated?

Long-term disability insurance is an important way to protect your income – and your family – but many people feel like it’s too expensive for them. The high risk that you’ll get ill or injured means that long-term disability insurance is important for you to have, but it also means that it’s expensive for carriers to protect you.

There are a lot of ways you can work with an independent broker or agent to make your policy more affordable, but it’s important to understand what goes into pricing your policy in the first place.

Long-term disability rates are calculated by looking at:

  • Age

  • Gender

  • Smoking history

  • State of residence

  • Benefit period

  • Waiting period

  • Built-in policy features

  • Occupation class

  • Coverage amount

  • Riders

Let's dive deeper into these and see what's taken into account with each factor.

Calculating your base rate

Every long-term disability insurance policy starts with a base rate. This is a starting point determined by factors like your personal profile and policy choices. Some of the elements factored into a policy’s base rate include:


As people get older, their risk of injury or illness goes up, so the price of coverage increases with age. Just as with life insurance, you can lock in your premium rate by applying early. Level premium plans will stay the same price throughout the life of the policy, so you can save a lot of money by applying today. You’ll never be younger than you are now!


For many insurance types, like life insurance and car insurance, premiums for women are lower than for men. With long-term disability insurance, however, the opposite is true. This is because men tend to file fewer claims than women, which means insurers pay out less to men, which means policies for men typically cost less.

This can largely be chalked up to societal norms: women are typically more comfortable filing a claim and taking time off of work, while men are more stubborn, continuing to work through whatever their ailment is rather than take time off and file a disability claim. It might save money in the short run, but not taking time off to properly heal when you’re hurt can have long-term implications that can cost you.

Smoking history

As with life insurance, if you smoke or have only recently quit, your premiums will be higher. The rate for people who have smoked within the past year tend to run about 25% higher than for non-smokers.

State of residence

You may pay a higher cost depending on where you live. That’s because carriers have divergent claims histories – basically, some states, like California, tend to have a higher rate of claims than other states, so carriers assume that if you live there, you’re more likely to file a claim yourself.

This is why it’s best to compare long-term disability insurance rates from all available carriers. One carrier might have a different claims history in your state and be able to offer you better rates than a different carrier in the same state.

Benefit period

The benefit period of a long-term disability insurance policy is how long the policy pays out. The longer you receive benefits, the more expensive your policy will be.

Benefit periods usually last two, five, or 10 years, or until retirement. Most claims last for three years, so a benefit period of at least five years is your best bet, while one that lasts until retirement offers the most comprehensive protection.

Waiting period

The waiting period (also known as the elimination period) is the time after you become disabled until a long-term disability insurance policy begins to pay. It’s usually 30, 60, 90, 180 or 365 days; the shorter the elimination period, the more expensive the policy.

The best value-to-coverage option usually comes with a 90-day waiting period. You can save more with a 180- or 365-day waiting period, but you’ll have to wait that much longer to receive your benefits.

Built-in policy features

Different carriers have built-in features on their base policy – things like residual coverage or own occupation coverage (meaning the policy will pay if you’re still able to do some work, but unable to continue doing your current occupation). Be sure to review what comes standard, and compare different carriers to see what their standard features are so you don’t end up paying extra for riders at one carrier that are standard at another.

Occupation class

The final element of the base rate is the most important: your occupation class. Carriers take your job duties, including factors like manual duties, stress, travel, income level, management, and more, and place you in different bands of risk. The "riskier" your occupation, the higher your premiums, but it isn’t necessarily because a carrier thinks you’ll be injured on the job. It’s mostly driven by what duties you’d be unable to perform if you were ill or injured.

Your occupation class is another reason why it’s important to shop multiple carriers before you settle on a policy; how carriers determine your risk band is something of a black box, and there’s little consistency across carriers. A good agent will understand the broad strokes of how carriers place different occupation classes to help place you with the best carrier for your occupation.

Coverage amount

After a carrier has determined your premium base rate, they’ll take into account the maximum amount of coverage you’re eligible for. They’ll look at your gross income and subtract from that any other coverage you have in force. This will vary by carrier; one carrier may have a maximum coverage amount of 65% of your gross income, while another will have a max of 60%.

Business owners and those who are self-employed will get a little extra leeway, while government employees are limited by participation in public pension systems.


Finally, there could be additional costs based on the riders you include in your policy, like a non-cancelable or own occupation rider. These can tailor your policy to fit your individual needs, rather than settling for a generic policy that doesn’t sufficiently cover you.

Remember, consider the built-in features before adding additional riders to your policy. In order to compare policies apples-to-apples, you may need to include some riders when you’re looking at policies to see how much you’ll be paying with or without them.

There’s a lot that goes into a long-term disability insurance policy, but you don’t have to figure it all out alone. A licensed agent can help walk you through the steps, decide what features are best for you, and compare policies from multiple carriers to make sure you get the coverage you need that fits your budget.