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How does it work?
What is disability insurance?
Disability insurance is essentially insurance for your income. If you become sick or injured, you may be forced to miss work. Health insurance will only cover the cost of some of your medical procedures and recovery, but can’t help pay other bills. If you’re unable to work and can’t receive a paycheck, you run the risk of missing payments on your mortgage, utilities, or other bills.
Types of disability insurance
While researching long-term disability insurance, you may have come across short-term disability insurance. While they’re similar, there are key differences between them.
What’s the difference between long-term and short-term disability insurance?
The main difference between the two products is how long they last. Short-term disability insurance lasts for a shorter period of time, usually starting at a few months and no longer than a year. Your long-term disability insurance will not begin until any short-term disability benefits have been exhausted. Long-term disability insurance, on the other hand, can last until your retirement.
Private short-term policies are available, but short-term disability insurance is usually only cost effective through an employer. Long-term disability plans are typically bought through a broker.
Other types of disability insurance
Other alternatives to short-term and long-term disability insurance are:
- Social Security disability insurance (SSDI)
- Self-funding via an emergency fund
- Workers' comp
- Relying on friends and family for financial support
However, these are imperfect options that may not be feasible for covering the cost of a multi-year disability; for example, Social Security disability insurance is difficult to qualify for and may be limited compared to your coverage needs.
How to buy disability insurance
There are several things to consider when deciding on which is the best disability insurance policy for you. Some important things to decide when you’re shopping are:
- Coverage amount – The amount of money your insurer will pay to you. It is recognized as a percentage of your gross income. A typical benefit amount is 60% of your gross income for long-term disability insurance. This is also known as the participation rate.
- Waiting period – How long after you become disabled before you will begin receiving benefits. Typical waiting periods for long-term policies are 30, 60, 90, 180, or 365 days, and between two and four weeks for a short-term policy. We recommend waiting a period of 90 days for the most cost-effective policies. This is also known as the elimination period.
- Benefit period – The amount of time you will receive benefits. Typically benefit periods are two years, five years, ten years, or until your retirement. Because the average disability lasts around three years, we recommend at least a policy with a five-year benefit period. A benefit period that extends to age 65 offers full protection and is the most common policy.
- Non-cancelable – A policy that is non-cancelable means that the insurer can never legally change the terms of the policy, including the premium.
- Own occupation – An own occupation policy will continue to pay out if you can’t work in your designated job, even if you are able to work elsewhere in another capacity.
- Exclusions – Exclusions limit what will be covered by a long-term disability policy. These are often pre-existing health conditions (for example, a policy may exclude certain pre-existing back ailments) but may also include potentially risky hobbies like skydiving.
How much does disability insurance cost?
Average long-term disability insurance rates cost between 1-3% of your annual salary, but the exact cost will depend on a number of factors about the applicant and the policy chosen. Short-term disability insurance can cost anywhere between $50 and $150 a month (or more), for a shorter coverage period.
Applicant factors
- Age – The older you are, the more expensive your policy. Learn more about how age affects your cost.
- Gender – Women make more disability claims and therefore pay more for policies.
- Smoking history – Smokers or recent smokers will have more expensive policies.
- State of residence – Residents of states with a higher number of disability claims will pay more for policies.
- Occupation class – Depending on elements of your job (including manual duties, travel, and more) you may be classified as having a “riskier” occupation and pay more for your policy.
Policy factors
- Coverage amount – Higher coverage amounts result in higher premiums.
- Benefit period – Longer benefit periods result in higher premiums. The most cost-effective benefit period is five years, but full coverage extends to age 65.
- Waiting period – Longer waiting periods result in lower premiums. The most cost-effective waiting period is 90 days.
- Built-in policy features – Some features like own occupation coverage may come standard in policies from some carriers and may affect the cost of the policy.
- Riders – Additional features that don’t come standard may raise the cost of the policy.
Best disability insurance companies
Most disabilities are caused by illness rather than injury, which means that disability insurance can provide a financial safety net for everyone. But what is the best disability insurance company for you? It largely depends on the policy cost and features that work for your individual situation. Find all of our disability insurance company reviews.
| COMPANY | BBB RATING | A.M. BEST RATING |
|---|---|---|
| Ameritas | A+ | A |
| Assurity | A+ | A- |
| Fidelity Security | A+ | A- |
| Guardian | A+ | A++ |
| Illinois Mutual | A+ | B++ |
| MassMutual | A+ | A++ |
| MetLife | A+ | A+ |
| Mutual of Omaha | A+ | A+ |
| Northwestern Mutual | A+ | A++ |
| Ohio National | A+ | A+ |
| Petersen International | B- | A |
| Principal Financial Group | A+ | A+ |
| RiverSource | A+ | A+ |
| State Farm | B- | A++ |
| The Standard | A+ | A |
| Thrivent | A+ | A++ |
| Unum | A- | A- |
Some insurance companies are best for certain professions, offering the best prices or most flexible options. Learn more about the best disability insurance companies for your profession.
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Frequently asked questions
How does Policygenius make money?
As the independent broker, we help you apply for the right disability insurance policy and manage the underwriting process through approval. If you accept and pay for the approved policy, the insurance company pays us a commission. Commissions are already priced into the cost of disability insurance - so you're not paying any extra to work with us (or any disability insurance agent or broker). Our commissions are similar across the disability insurers we work with, so we don't favor one company over another in the recommendations to you.
Are the disability quotes that Policygenius provides accurate?
They are as accurate as disability insurance quotes can get, based on the accuracy and completeness of information provided. Pricing disability insurance is complicated - as it depends on the applicant's health history and occupational details. Quotes are an estimate and the final rate is determined by the insurance company through a process called underwriting (which is the process of reviewing all the applicant's detailed information and assigning a risk class and rate). If the final rate comes back higher after underwriting, our experts can work with you to modify the coverage to fit within your budget.
Shouldn't I buy directly from a disability insurance company?
Also, the rate you get quoted initially may not be the rate you're approved at, after the underwriting process (in which the insurer reviews your medical history and occupational details). If you apply with the disability insurance company directly, and you're approved at a different rate, you're stuck with that offer. They won't help you figure out if you can get a better offer from a different disability insurance company. If you apply through Policygenius, we can review that offer to see if another disability insurance company we work with can provide a better alternative. That's the advantage of working with an independent broker: extra service for no extra cost.