Ways To Reduce The Price
There are things you can do to reduce the cost and still get a good policy. Here are some things to consider when learning how to buy disability insurance on a budget.
Consider a shorter benefit period. Although most companies offer benefit periods to age 65, consider a 5 or 10-year option, especially if you’re in your upper 40’s or 50’s. Shorter benefit periods limit the potential exposure for the company, so this will drive down the cost. The average length of a long-term disability is 2.5 years, so even a 5-year option will cover the average but it does increase your liability should you become disabled for a longer period of time.
Consider a lower benefit amount and use Future Increase Option2 to allow for increases down the road. There is a maximum level of disability coverage that you can buy based on your income. Just because you can buy this much doesn’t mean you have to. Buying a lower amount of coverage will cost less and having something is certainly better than having nothing.
Use the modified own occupation definition of total disability. Although a true own occupation policy is the best type of protection, if the choice is between nothing or a modified own occupation policy, get the modified own occupation policy! The difference between true “own occ” and modified “own occ” is that under a true own occ policy if you chose to do another job, you could still receive full benefits from your policy. Under a modified own occ policy, if you chose to do something else, you might not be eligible to receive any further benefits. If you don’t have a very specialized occupation, and you’re looking to buy basic coverage, a modified own-occupation policy might be just fine.
Consider a delayed cost of living adjustment rider. When someone is disabled and has purchased a cost of living adjustment (COLA) rider3 on their policy, benefits will begin to increase to keep pace with inflation. Typically, these increases in benefits start after someone has been disabled for 12 months. A COLA rider that starts increasing benefits after 4 years is less expensive but still offers long-term inflation protection.
Don’t compromise on the financial strength of the insurance company backing your coverage. You can make compromises on the definition of disability, the COLA rider, and the benefit period, but make sure you buy your policy from the strongest mutual life insurance company you can. The promise to pay in the event the unthinkable happens is only as strong as the company behind your policy.
If you’ve thought about protecting your income, don’t let sticker shock keep you from following through in your quest of learning how to buy disability insurance. There are ways to design a policy that provides a good level of protection and doesn’t break the bank. Work with your agent and let him or her know what is important to you and what is not. They are the experts and should be able to get you the coverage you want at a price you can live with.
This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.
1 Council for Disability Awareness (https://disabilitycanhappen.org/disability-statistic/)
2 Conditions and limitations apply. Medical information is not required when applying to exercise an increase option. Taken into consideration are financial information as well as all disability insurance in force, for which you've applied or are eligible to receive.
3 This benefit is not necessarily protection against increases in the cost of living. Optional riders are available for an additional premium. Some policy benefits and features are not available to all occupations.