How Much Does Disability Insurance Cost?
There are several factors, the price will be according to the elimination period, benefit period, age, optional riders, premium structure, occupational class, gender, state, health, benefit amount, and type of coverage. As a rule of thumb, you could expect to pay between 1-3% of your annual income for a quality disability insurance plan. The price could end up being more or less than 1-3%, but on average we strive to structure a policy that fits into this cost.
As you can see, there are multiple factors listed above that go into determining the overall cost of your policy. While you cannot control some of the factors such as age, gender, state, health history, and occupational class, there are many decisions that you can make to help control the final price you are going to pay.
Choices You Can Make To Control The Final Price
1. Elimination Period
Your elimination period is best thought of as the deductible on your policy. It is the period of time from the onset of your sickness or injury, until you are eligible to start receiving your monthly benefits. You have the choice of a 30 day, 60 day, 90 day (most common), 180 day, or 365 day elimination period. The longer your elimination period is, the less expensive your policy is going to be. Obviously with a shorter elimination period you would qualify for more claims, so the insurance company is going to charge you more for the policy. The vast amount of policies sold in this industry are sold with a 90 day elimination period, but every person should understand that changing this option is going to have a serious impact on the final price of your policy.
2. Benefit Period
This is another choice that you are going to have to make when your buy your disability insurance contract. It is the period of time that you can receive your benefits while on a claim. There are several options to choose from; 2 years, 5 years, 10 years, To Age 65, To Age 67, To Age 70, or the X45 Graded Lifetime Extension Benefit. The longer the benefit period you choose, the more expensive the final policy is going to be. A benefit period of 2 years does not mean that the policy you buy is only good for the "next two years", it means that if or when you become disabled the policy will pay you benefits for up to 2 years. Going with a shorter benefit period will cost you much less, but you have to understand that you are running the risk of becoming permanently disabled, and getting a final check at the end of a 2, 5, or 10 year period of time.
3. Optional Riders1
This is the one area where you are going to have to make a lot of choices with your agent. We do offer an article for optional disability insurance riders that shows you what percentage of our clients choose each and every optional rider offered. It will show you that the vast majority of our clients do purchase the Enhanced Partial Disability Benefit Rider, and there are many reasons for this. If you think about it, people buy disability insurance to protect their income, and that specific rider offers so many benefits that our office highly recommends no policy be sold without it. However there are multiple other riders offered that can be added or removed that will also have a large impact on the final price of your policy. Take some time to review the article we provided a link to above to understand more about which optional riders you would want to have on your policy. Our agents will also help you to understand the impact of each rider to you in terms of benefits, and price.
4. Premium Structure
This is a fairly simple decision to make when you buy a policy. You can choose to have a level premium structure, or a graded premium structure. A level premium structure means that the price you pay when you buy the contract today will be the same price every year you own the policy. Rates will never change, this is one of the best aspects of buying a personal policy today while you are the youngest you will ever be. If you bought a DI policy at age 32 with a level premium structure, you would pay rates based on a 32 year old for as long as you owned the policy. The other choice you can make is the graded premium structure which is initially much less expensive than a level premium, but the price goes up every year you own the policy. Younger professionals tend to buy a graded premium structure DI policy while money is tight, but we recommend that you convert this to a level premium policy as soon as you are able to lock in your rates. Graded premium disability insurance policies are very common with resident physicians.
5. Benefit Amount
This is one area that tends to cause some confusion with people buying for the first time. Individually owned policies do not work on percentages of income, you purchase a specific monthly benefit amount. The amount you can buy is determined by each insurance company's issue and participation limits. They have a chart that shows the maximum monthly benefit a person can buy based on income levels. That does not mean that you have to buy the maximum amount you are eligible for, you can buy as little as $500 a month if that is what you want or need. Our advice is to purchase the maximum level you qualify for, and can afford because we believe that disability insurance is the most important financial services product anybody can own. Your ability to earn an income is your most valuable asset, and DI is the one product that protects this asset. Having said that, if you need to reduce the overall cost of your policy, reducing the monthly benefit will have a large impact on the price you pay.
6. Type of Coverage
Berkshire Life offers the Provider Choice disability insurance product line. As a customer you can choose to have the the Premier, Select, or Essential product offerings. The Premier is the most comprehensive level of coverage you can own, the Select is a product that will solve the need of income protection for most people, and the Essential provides very basic income protection.
Look at it this way, if you were offered two identical jobs, one paid you $150,000 a year while you worked, but nothing if you were ever sick or hurt. The other paid you $147,000 a year, and 60% of your income tax free if you were ever disabled until you reached the age of 65 or recovered, which would you take? If you would take the second option, then you understand the value of individual disability insurance. On average you can expect to pay between 1-3% of your annual income for a high quality policy, but as you can see from the information above there are many choices you can make to have a large impact on the final price of your contract. The proposals that we send to you will show you all of your options, so make sure that you spend some time with your assigned agent on the phone going through all of them to design a policy that fits your needs and your budget.
1. If you choose to have an optional rider on your policy your premium will increase.