Updated September 13, 2017
Buying a long-term disability (LTD) policy is not unlike buying a car. Most people don’t need a car with all of the bells and whistles. They don’t need the fancy stereo, the heated seats, or the robot in the dashboard that makes hot chocolate. Same goes for long-term disability policies; not everyone needs a short waiting period, a large monthly benefit, or a benefit period that lasts until retirement.
Since long-term disability quotes are personalized to you, policies don’t come with a big red price sticker until after you’ve picked your features. But that doesn’t mean you’re stuck with that price.
Here are the best ways to get long-term disability insurance you can afford.
Reduce your benefit period
The benefit period is how long your long-term disability will pay out benefits. The longest benefit period you can get is to age 67 (or age 70 with certain carriers), the normal retirement age for persons born after 1955. That way, there’s no gap between your LTD benefits stopping and your Social Security benefits starting.
Of course, this is also the most expensive option. You can save money on your premium by reducing this benefit period. You can have it stop at age 65, or have it terminate ten, five, or two years. Some insurance companies may have different, less, or more benefit period options than those described above.
The average disability resolves within three years, so it’s relatively safe to reduce your benefit period to as low as five years.
Increase the waiting period
Every long-term disability policy comes with a waiting period (also called an elimination period). This is the amount of time between when your disability starts and when the insurance company will start paying out your benefits.
The most expensive policies have short waiting periods of either 30 days or 60 days. These waiting periods make sure that you get benefits as quickly as possible, and will allow you to claim for shorter disabilities, but will also drive the cost up of the policy significantly.
Typically, people choose 90 day waiting periods. This is a sweet spot for a lot of people (and a cost-effective option on policies). As long as you have the savings to self-insurance for three months, a 90 day waiting period helps you save money on premiums without sacrificing too much convenience. You could also cover this period with a short-term disability policy, which you may be able to acquire through your employer.
If you need to get a cheaper LTD quote, you can get waiting periods as long as 180 or 365 days. While this will lower your LTD quote, you need to make sure that you have the savings to self-insure before your LTD policy kicks in.
Lower the monthly benefit
The monthly benefit of a long-term disability policy is designed to replace the take-home income of the job you can no longer perform. The maximum monthly benefit that most insurance companies allow is between 60 and 70% of your current gross income. This roughly lines up with your take-home pay.
However, if you think you can get by with less, you can lower your monthly benefit and save money on your premium. It might help to build a model budget to see how much you can afford to cut out of your monthly expenses. Remember that having a disability usually means taking on unexpected long-term medical expenses, making this option potentially risky.
Want to learn more about long-term disability insurance? Check out our guide.
Photo: William Warby.