How Much Does Disability Insurance Cost?

Disability insurance costs vary greatly from person to person based on a range of factors. However, understanding what disability insurance is and how it works can give you a better picture of how much you can expect to pay for this valuable protection.
What is Disability Insurance?

According to the Social Security website, research has found that “a 20-year-old worker has a 3-in-10 chance of becoming disabled before reaching retirement age.” Disability insurance is designed to protect workers against financial devastation in the case of serious injury or illness, providing them with a portion of their lost income for a specific amount of time.

Is Private Insurance Necessary?

In some cases, you may decide you do not need to purchase your own private insurance. Most employers actually provide some sort of disability insurance for their workers. Small companies usually offer more limited policies than medium- to large-sized companies, but depending on your profession this may still be adequate.

Be aware though that even if your company offers long-term disability coverage, you will probably have to pay taxes on the benefits once you start collecting disability funds.

Several other sources of income may be available if you suffer a debilitating injury or illness. Social Security may pay you benefits if your disability is so severe that you are not able to continue work in any field and your condition is expected to remain unchanged for more than a year. Social Security will not pay any benefits for partial or short-term disability though.

Workers Compensation may also contribute to your monthly financial needs if your disability is job-related, while some auto insurance policies will provide disability benefits if an auto accident caused your injury.

The only way to make sure you are completely covered for all types of disability, however, is to purchase your own disability insurance policy.

Pricing It Out

Private disability premiums are calculated using a number of factors like gender, age, type of profession, and your current salary. The disability insurance costs will be highest for those in risky work environments like construction sites and factories and lowest for those in desk jobs.  Your premiums will also depend on how much of your income you want replaced after disability. The greater the percent of income to be replaced, the higher your costs will be.

Adding on benefit options to your policy will also increase your premiums. For example, you could opt to add a Cost of Living Adjustment term to your policy that would increase your benefits over time based on rises in consumer inflation. Another option is to buy insurance to cover both accident and illness-induced disability. Typically, the more features you add to your policy, the more expensive your premium will be.

While an exact price for disability insurance is hard to come by, experts estimate that most people can expect to pay between 1 percent and 3 percent of their annual income. Yet depending on the risk level of your job, it may be one of the smartest investments you can make.

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