How much does disability insurance cost?

The U.S. Social Security Administration states that one in four 20-year-olds will become disabled before reaching retirement age. [1] Fortunately there's long-term disability insurance, which replaces your income if a disability keeps you from working.

Long-term disability insurance costs are based on your occupation and how you earn, and premium rates can start as low as $12.50 per month. If you have disability insurance through an employer, then the costs may be subsidized.

How much does long-term disability insurance cost?

A long-term disability insurance policy costs 1% to 3% of your annual salary. Actual premiums vary for each individual, but long-term disability is the most cost-effective form of income protection you can get. (The benefit payments fill in the gaps left by Social Security disability, short-term disability, or Workers' Compensation, which may not provide sufficient coverage.)

The chart below shows how much you might pay for coverage based on a pre-tax income of $15,000 to $200,000 per year. 

You can also use our disability insurance calculator to determine the costs of a policy based on your personal situation.

What affects long-term disability insurance costs?

Disability insurance companies set your premium rates based on several factors, which include:

Age

The older you are when you buy disability insurance, the more it’ll cost. You’ll get lower rates by buying when you’re younger and at lower risk of becoming disabled.

→ Take a look at disability insurance rates by age

Benefit period

This is how long you’ll receive disability insurance payments. Benefit periods can affect the cost of disability insurance, and they can last two, five, or 10 years, to age 65, or for life. The longer the benefit period, the higher the cost of your insurance. Policygenius advisors recommend a benefit period of at least five years, since most long-term disabilities last an average of two to three years. [2]

Coverage amount

The more disability coverage you need, the higher your premiums will be. Someone who earns six figures will need more coverage than someone who earns less, and so higher-income earners would pay higher disability insurance rates. Experts recommend setting your coverage amount at 60% of your gross (pre-tax) salary. Benefit payments are tax-free, so 60% will equal approximately 100% of your current take-home pay. 


Health

The healthier you are, the more competitive (lower) your long-term disability rates will be. Habits that impact your health, like smoking, and medical conditions, like diabetes or hypertension, will also increase the cost of insurance.
 These factors will be taken into account during underwriting.

Location

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


Occupation

The riskier your job, the higher your chances of experiencing a disability. Your disability insurance will cost more, or you may have limited coverage options, if you have a hazardous job. 


→ Learn more about finding the best disability insurance policy by profession

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 benefits. The shorter your waiting period, the higher your disability insurance premiums will cost.

Cost of long-term disability insurance vs other disability insurance

Getting a long-term disability insurance plan can be more cost-effective than buying an individual short-term plan, which doesn't pay benefits more than a year. People usually get short-term disability insurance from their employer for free.

If you get long-term disability insurance as part of your employee benefits, you don’t have to pay any premiums for it, or the costs are subsidized by your work. The downside to the lower cost is that your disability coverage may be limited. Most people can benefit from getting their own long-term policy to supplement their disability coverage.

Social Security also can also provide long-term disability benefits at no cost, but the monthly benefit payment may not be sufficient.

At just 1% to 3% of your salary, long-term disability insurance is a relatively affordable way to protect your finances. You can save on your rates by taking out a policy when you’re younger and healthier. If you're looking to buy coverage, a licensed expert at Policygenius can help you compare plans and disability insurance quotes.

How riders affect disability insurance costs

The factors listed above are the most important details in setting your long-term disability policy’s base price (or base rate). If you add extra features to your policy — called disability riders — this can also increase the total costs you pay for coverage.

The cost of riders can vary based on your policy and insurer. Some riders are free and come standard with your policy, like a waiver of premium rider, which covers your premiums while you’re unable to work and receiving benefits. But other riders, like a cost-of-living adjustment (COLA) rider, may be too expensive to be worth it for most people.