Not sure how much your disability insurance will cost? Let our calculator crunch the numbers for you.
Many people don’t take into consideration how they’d make ends meet if they become disabled and are unable work. They may assume they can count on workers’ compensation or Social Security disability benefits, but these options are limited.
A private long-term disability insurance policy is the best way to protect your income. But how much will that cost? Use this disability insurance calculator to find out how big of a disability benefit you need, how long it should last, and how much it will cost.
You only need to provide a few pieces of information to use our disability insurance calculator, including your gender, age, state of residence, occupation details, and income.
Click the button to get started, or read on for more information on calculating your own coverage needs and cost.
Your coverage needs largely determine the cost of your policy. To calculate how much coverage you need on your own, you need to consider:
Debts — Are you paying off student loans or a mortgage? You need a large enough benefit to cover these costs so you don’t fall behind.
Regular expenses — In addition to large loans, you need to also think about your everyday costs. Food, clothing, childcare costs, and everything else that goes into your monthly budget has to be accounted for.
Assets — What do you have in terms of savings and an emergency fund? Ideally you don’t want to completely deplete these, but they can be used in conjunction with a disability insurance policy to cover all of your costs. If you have enough in savings, you may be able to opt for a lower disability benefit and lower your disability premiums.
Once you’ve determined those factors, calculate the following:
Benefit amount — When you know all of your monthly expenses, subtract the amount of assets you can tap into to pay them if needed. Then you’ll know how much you need each month as a disability benefit. For most people, this will be around 60% of their pre-tax income.
Benefit length — Long-term disability lasts for a minimum of two years and can last all the way to retirement. Most people opt for five years of coverage, but you can work with an expert to raise or lower the benefit period as necessary.
The calculator above can crunch the numbers and determine the recommended benefit amount and length based on your financial picture, but some back-of-the-napkin math can give you a ballpark calculation of how much you need.
As a general rule of thumb, long-term disability insurance will cost about 1% to 3% of your salary.
However, the actual price depends on a number of factors. A disability insurance base rate is a starting point based on your personal profile and is calculated by looking at:
Age — Older people pay more (similar to life insurance).
Gender — Men typically pay less because they file fewer claims.
Smoking history — Smokers pay more.
State of residence — Residents of states with higher claims pay more.
Benefit period — Longer benefit periods are more expensive.
Waiting period — Longer waiting periods, known as elimination periods, are cheaper.
Built-in policy features — Some additional features come standard at no extra cost.
Occupation class — The “riskier” your occupation, the more expensive the policy.
Once your base rate is set, it is factored into the final premium rate in conjunction with:
Coverage amount — The higher the monthly disability benefit, the higher the cost of the policy.
Riders — Outside of built-in features, extra features may add to the cost.
Learn more about long-term disability insurance cost.
When you’re shopping for disability insurance, you have three primary choices: long-term, short-term, and Social Security.
Long-term disability insurance is the best option for more people.
It’s easy to qualify for compared to Social Security disability insurance, and it lasts for a long time compared to short-term disability insurance. It’s the most comprehensive and cost-effective form of income protection you can buy.
However, these three types of disability insurance can complement each other; for instance, a short-term policy can cover the time before your long-term policy kicks in.
So how do you calculate these costs?
Short-term disability insurance costs about the same as a long-term policy — 1% to 3% of your income. You get slightly more coverage (about 80% of your pre-tax income, compared to 60% with long-term disability insurance).
Social Security disability insurance doesn’t technically cost anything (if you’ve had a job, you’ve paid into it via taxes). The average benefit amount is about $1,200; however, you can calculate your benefit amount with the Social Security Administration’s Social Security disability insurance calculator.
Learn more about the different types of disability insurance.
Besides looking for a policy that provides the coverage you need at a price you can afford, you should strongly consider which carrier is best for your profession when considering the best disability insurance company for you.
It’s important for everyone to protect their income, and especially so for people in high-paying professions that also have a high cost of education, like lawyers and doctors. Some companies provide more competitive rates and policy options than others for some professions, so be sure you’re working with the company that fits your needs and your chosen field.
Learn more about choosing the best disability insurance companies.
Colin Lalley is the Associate Director of SEO Content at Policygenius in New York City. His writing on insurance and personal finance has appeared on Betterment, Inc, Credit Sesame, and the Council for Disability Awareness.