How much does long-term disability insurance cost?

Long-term disability insurance is the best way to cover the one in four chance you’ll experience a disability longer than 90 days in the course of your career. It provides security when other forms of income protection, like Social Security disability insurance, short-term disability policies, or workers' compensation can't. But how much is this protection going to cost you?

In this article you'll learn about:

• Sample long-term disabliity insurance rates
• How disability insurance rates are set
• Which extra features can raise the cost

Long-term disability insurance costs

In most cases, a long-term disability insurance policy will cost 1-3% of your annual salary, and is the most cost-effective form of income protection you can get, starting at around $25 a month and going as high as $500 a month.

The long answer is more complicated. We’ll explain below and we recommend you read on. Long-term disability insurance (LTD) is important—it could be the only thing that keeps you from having to cancel your Netflix subscription at some point down the line. So you want to make sure you know what you’re buying.

What determines your long-term disability insurance costs

There are several big factors that affect your rate, also called your premium. These include:

• Coverage amount
  • How much are you going to need every month while you’re not collecting a paycheck? The more you’ll need, the more your premium will cost. Since you’ll be paying your premiums after taxes, the benefits you’ll receive from your LTD policy will be tax free. A good rule of thumb is to set your coverage amount at 60% of your gross (pre-tax) salary, which will come end up covering about 100% of your current take-home pay. 

• Benefit period
  • How long do you want benefits to last? Two years? Five or 10 years? Until retirement? The longer you want to be able to receive benefits, the more your premium will cost. A benefit period that lasts until you’re 67 might end up being too expensive, but two years is probably too short, since most long-term disabilities last an average of about 3 years. We recommend buying a benefit period of at least 5 years. If you you can afford more—go for it! Better safe than sorry. 

• Waiting period
  • Long-term disability insurance has a waiting period (also called the elimination period) between when you become disabled and when you start receiving disability benefits. You may have some short-term disability insurance through your job lasting either 30 or 60 days. The short-term disability would cover your living expenses while your long-term disability insurance is in the waiting period. The shorter you want your waiting period to be, the more your policy will cost. Conversely, the longer you’re willing to wait out the elimination period, the cheaper your premiums will be. Learn more about disability insurance elimination periods.
• Age
  • As with life insurance, the older you are when you buy your policy, the more it’ll cost you. If you’re young and you’re considering buying long-term disability insurance, know that it’ll never get cheaper than it is today.
• Health
  • The healthier you are, the lower you long-term disability costs will be. Bad habits like smoking and drugs, and conditions like diabetes or hypertension will cost you.

• Occupation
  • Are you a professional stuntman, hang glider or shark trainer? Awesome! Unfortunately, that’s also going to cost you. The riskier your job, the higher your chances of experiencing a disability, and the more your disability insurance will cost. 

• Location
  • Long-term disability insurance rates vary by state. They tend be higher in states where more people file claims, but each insurer is a little different, so make sure to get a few quotes.


Extra features

The above are the most important factors in setting your long-term disability policy’s base price (or base rate, as its called). Going for a modest coverage amount with benefits lasting a handful of years and a long waiting period? You’re probably going to end up closer to 1% of your salary in cost. Want fuller protection with a longer benefit period and a short waiting period? You’re probably going to wind up closer to 3% of your annual salary.

But there are a few extra features you can consider adding on to your policy, called riders, that could add in extra costs. Some of them are free and come standard, like a Waiver of Premium rider, which means you don’t have to pay your premiums while you’re unable to work and receiving benefits. Some of them will cost extra but you should still consider, such as:

• Non-cancelable
  • A non-cancelable policy means that your insurance company can’t cancel your policy or raise your rates if you switch jobs to finally pursue your true calling of shark training. It does not mean that you can’t cancel your policy—you can always cancel your policy.

• Own occupation
  • This means you’re still eligible to collect benefits if you’re too disabled to return to your current job, but you’re still capable of doing some other kind of work. By contrast an “any occupation” policy will pay your benefit only if you’re too disabled to do any kind of work. Learn more about own occupation disability insurance.

Other riders, like a cost-of-living adjustments rider (which increases your monthly benefit to match expense inflation), are useful for some people but may be too expensive for most shoppers.

Learn more about what disability insurance riders and features. They might cost a little extra here or there, but they may be worth it for your particular lifestyle and needs.