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How does it work?
What is disability insurance?
If you become sick or injured and cannot work, disability insurance replaces about 60% of your gross income — generally amounting to your actual take-home pay.
Because health insurance only covers the cost of your medical procedures and recovery, disability insurance is a necessary supplement to pay for your everyday bills and expenses. It’s crucial that anyone who relies on an income for their everyday expenses gets a disability plan — getting coverage safeguards you against the risk of missing payments on your mortgage, utilities, and other bills.
Types of disability insurance
Most employers offer short-term disability insurance, but independently buying a long-term disability insurance plan will provide more robust coverage.
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. Long-term disability insurance, on the other hand, can last until your retirement. Your long-term disability insurance will not begin until any short-term disability benefits have been exhausted.
Private short-term policies are available from our partner LifePreserve, but short-term disability insurance is usually the most cost-effective through an employer. Long-term disability plans are typically bought through a broker and offer the most comprehensive coverage.
Alternatives to disability insurance
If you decide that disability insurance isn’t for you, there are some substitutes to short-term and long-term disability insurance:
- 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 long-term disability. For example, Social Security disability insurance is difficult to qualify for — to get benefits, you must prove that you cannot work in any job. Additionally, the benefits offered are usually too low for most people’s needs.
Meanwhile, Workers’ Comp only pays out if you are injured on the job, but a majority of disabilities occur outside of the workplace. Purchasing a standalone long-term disability insurance plan is the best way to ensure you don’t lose your income if you become disabled.
Who needs disability insurance?
An unexpected disability can happen to anyone. Accidents happen on and off the job, and even the healthiest people fall ill. Because of this, it’s critical that anyone who would not be able to maintain their standard of living if they lost their income gets disability insurance. However, even those with substantial savings should consider buying a policy.
According to Policygenius data, the average length of a disability for someone in their 30s is 32 months — that’s almost three years of lost wages. For people in their 40s, that number jumps to 42 months. Getting a disability insurance policy ensures that you don’t have to deplete your savings or endure financial devastation due to a temporary disability, protecting your present and future financial stability.
How to buy disability insurance
There are several factors to consider when deciding which disability insurance policy is the best for you:
- Coverage amount – The amount of money your insurer will pay to you if you become disabled. A typical benefit amount is around 60% of your gross income for long-term disability insurance. This is also known as the participation rate.
- Elimination period – How long after you become disabled before you will begin receiving benefits. Typical elimination periods for long-term policies are 30, 60, 90, 180, or 365 days, and between two and four weeks for a short-term policy. This is also known as the waiting period.
- Benefit period – The amount of time you will receive benefits — or funds from the insurance company. Typically benefit periods are two years, five years, ten years, or until your retirement. Because the average disability lasts around three years, we recommend a policy with a five-year benefit period.
- Non-cancelable – The insurer can never legally change the terms of a non-cancelable policy, including how much you pay.
- 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 disabilities are covered by a long-term disability policy. These are often pre-existing health conditions but may also include risky hobbies like skydiving.
How much does disability insurance cost?
Average long-term disability insurance policies cost between 1-3% of your annual salary, but the exact cost will depend on several factors and the type of policy you buy.
Applicant factors
- Age – The older you are, the more expensive your policy will be. You can expect to pay more than someone who bought it at a younger age.
- Gender – Based on claims data, women are more susceptible to a disability and make more disability claims. Because of this, women pay more for disability insurance.
- Smoking history – Smokers or recent smokers pay more for disability insurance.
- State of residence – Residents of states with a higher number of disability claims will pay more for coverage.
- 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 a benefit period that extends to age 65 is the most common.
- Elimination period – Longer elimination periods result in lower premiums. The most cost-effective elimination period is 90 days.
- Built-in policy features – Some features like own-occupation coverage may increase the cost of the policy.
- Riders – If you add on additional features that aren’t included in your policy, you will pay higher premiums.
Choosing the best disability insurance company
The best disability insurance company for you largely depends on the policy cost and features that work for your individual situation. Your age, health, and what you do for work will have the biggest impact on how much you pay for disability insurance, but every insurer views each application differently. Some insurance companies are better for certain professions than others, offering the best prices or most flexible options, while others may not offer you affordable rates.
Shopping around is the best way to find the right insurer who will offer you the most affordable rates — and when it comes to getting you the best coverage, Policygenius has got your back. Our agents will work with you for free to find you a policy that suits your needs at the most competitive price.
Check out our full breakdown of the best disability insurance companies in 2021.
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Frequently asked questions
How do I get disability insurance?
You can get disability insurance by shopping around with an independent broker like Policygenius. Policygenius agents will work with you for free to find the most affordable disability insurance policy for your situation.
Is disability insurance worth getting?
Yes. Disability insurance is worth getting because it replaces your income if you become disabled and cannot work. Without this safeguard, you may be unable to maintain your standard of living.
Who needs disability insurance?
Anyone who relies on their income to live should get disability insurance. Even those with significant savings should have a policy so that they don’t end up depleting their savings.
What are the two types of disability insurance?
The two types of disability insurance are short-term disability insurance and long-term disability insurance. Short-term disability is often an employer-sponsored plan that only pays out benefits for a limited period of time. Long-term disability plans pay out benefits for disabilities that last years.