Long-term disability insurance can protect your financial well-being in the event an illness or injury. Disability policies offer income protection of up to 75 percent of your salary so that your household can continue to pay the bills even if you don’t have any work salary.
Unfortunately, there are many misconceptions swirling around disability income insurance. Many professionals believe that disability insurance only covers your income in the event of catastrophic illness or injury, but this just isn’t the case.
Disability insurance can offer income replacement for other common injuries or illnesses, and at very affordable rates too. You can even find special plans and discounts just for physicians.
How Much Does Disability Insurance Cost?
Generally, individual, long-term disability insurance costs about 1 to 3 percent of your annual salary. More comprehensive coverage options, like riders, can up the costs to around 5 percent.
How much you’ll pay is tied to your annual income and other personal factors.
Looking at just annual salary alone, here’s a table outlining what you might pay each year for basic disability coverage.
| Annual Salary | Yearly Cost | Monthly Premiums |
| $75,000 | $750 to $2,250 | $63 to $188 |
| $100,000 | $1,000 to $3,000 | $83 to $250 |
| $125,000 | $1,250 to $3,750 | $104 to $313 |
| $150,000 | $1,500 to $4,500 | $125 to $375 |
| $175,000 | $1,750 to $5,250 | $146 to $438 |
| $200,000 | $2,000 to $6,000 | $167 to $500 |
| $250,000 | $2,500 to $7,500 | $208 to $625 |
| $300,000 | $3,000 to $9,000 | $250 to $750 |
| $350,000 | $3,500 to $10,500 | $292 to $875 |
| $400,000 | $4,000 to $12,000 | $333 to $1,000 |
| $450,000 | $4,500 to $13,500 | $375 to $1,125 |
Factors that Impact the Cost of Long-Term Disability Insurance
Beyond salary, a number of factors will impact the cost of your individual long-term disability insurance.
- Monthly benefit amount: Benefits generally replace 60 to 75 percent of your pre-tax income. As a rule of thumb, the higher the percentage, the more your policy will cost.
- Benefit period: This is the length of time that you’ll receive benefit payments. This period can range from several months to 10 years, or until you reach retirement age. Rates for disability insurance coverage are higher for longer benefit periods.
- Elimination period: This is the waiting period for your benefits from the date of the debilitating injury or illness until your benefits are paid. Depending on your policy, the elimination period can range from 60 days to two years. For shorter elimination periods, you’ll pay higher premiums.
- Age: As you get older, you’re more likely to suffer from a severe illness or injury. For this reason, older consumers are quoted higher rates. If possible, buy your disability insurance when you’re younger so you can lock in better pricing. Even if you’re 45 years old now, you can still get a better rate now than anything that will be offered in the future.
- Gender: Women policyholders commonly pay 40 to 50 percent for more coverage than men. Policy costs are higher because women are more likely to file disability claims and be paid out benefits. Women are also more likely to use disability for both their own health conditions and to care for severely ill family members.
- Preexisting Conditions and General Health: If you smoke, have a chronic health condition or other preexisting condition, or are in poor overall health, the cost of your policy will be much higher. In some instances, you may have limited coverage where your policy would preclude coverage for a known condition.
- Occupation: The salary and risks associated with your occupation factor into your disability insurance costs. Rates for those individuals with high-salary jobs or high-danger jobs will be more expensive.
- Hobbies: Leisure-time activities can impact your premium costs. Mountain climbing, skydiving, or other risky hobbies will increase your policy rates.
- Definition of Disability: There are multiple definitions of disability that insurance companies commonly use, with the two most common definitions being:
- Any occupation: With this definition, benefits kick in if you become so disabled you can no longer perform any job whatsoever. It’s a harder standard to meet.
- Own-occupation: This is a more generous definition. It means your benefits will kick in if your disability prevents you from doing your regular occupation. Own-occupation insurance offers better coverage but it costs more.
Riders Impact Disability Insurance Costs
Riders can greatly impact your long-term disability insurance policy costs. A rider is an optional coverage that you can add to your policy for an increased rate.
Riders are distinct from built-in benefits. Built-in benefits are extra coverage that the policy offers to distinguish itself from other insurance coverage options, with the costs built into the price.
Different insurance policies will offer different rider options, and some may require special underwriting.
Common General Disability Insurance Riders
- Cost of living adjustment (COLA) rider: Sometimes called an inflation protection rider, this means that your disability insurance benefits will increase to keep pace with inflation. Typically the rate of increase is tied to the Consumer Price Index and the benefit maxes out at 6 percent.
- Guaranteed renewable rider: Also referred to as a non-cancelable rider, this means your insurance policy is renewable year over year and cannot be canceled as long as you continue to pay your premiums.
- Residual benefits rider: If you are partially disabled (able to work in some capacity at less than full-time), you will receive partial disability insurance benefits.
- Future purchase increase rider: Allows policyholders to purchase additional coverage at a future date with proof of increased salary and financial need. Typically, you can do so without having to undergo additional medical exams or underwriting.
Disability Insurance Riders for Physicians
The following riders are often a good idea for physicians as they are high-salary earners who have often accrued a significant amount of student loan debt.
- Medical own occupation rider: Terminology may vary with different disability insurance companies, but this type of rider can provide stronger protection for physicians. It defines a disability as not being able to practice your specific field of medicine.
- Retirement protection rider: This rider enables you to continue contributing funds for your 403(b) or other IRA while disabled. Your insurance policy will contribute the funds to your plan that you would have otherwise contributed if working.
- Student loan protection rider: Your insurance policy will make your usual student loan payments in the event you become disabled. Typically the benefit is capped at $2K per month.
Cost of Long-Term vs. Short-Term Disability Insurance
Long-term disability and short-term disability insurance tend to cost similar rates — about 1 percent to 3 percent of your total income. They can be used together.
Long-term vs. Short-term Disability Insurance
While the disability insurance rates are similar, there are key differences between long-term and short-term disability policies.
- Short-term: Offers coverage for a shorter-term disability that lasts 13 to 26 weeks. STD benefits typically pay up to 60 percent of your weekly salary up to a maximum amount. STD plans are generally offered through your employer as a group plan, and the employer may pay the premiums at least in part.
- Long-term: For longer-term disabilities. May be offered through your employer or privately purchased. LTD plans usually have a 90-day elimination period or longer and provide a higher rate of coverage.
If you have both STD and LTD coverage, you will need to continue to pay your LTD benefits during its elimination period.
Where to Find Long-Term Disability Insurance
- Employer Plans: Opt into group plans during the benefits enrollment period. Add coverage for your spouse when possible.
- Spouse Plans: Have your spouse add disability coverage for you during their benefits enrollment period.
- Association Plans: You can acquire group coverage for different associations you belong to, like the AMA, AAA, ABA, unions, townships, or other affinities.
- Insurance Companies: Shop individual policies at different insurance companies like Guardian or Principal.
- Online Insurance Marketplace: Compare rates and get quotes from multiple insurance companies on marketplace sites like PolicyGenius.
Frequently Asked Questions
Is disability insurance more expensive than life insurance?
Disability insurance is markedly more expensive compared to life insurance, but you have a much higher likelihood of using it.
You can claim and use disability benefits for a host of medical and physical conditions, including childbirth, surgery, or depression. But for life insurance, claims are paid out in very limited scenarios.
Is disability insurance worth it?
Yes. One in three Americans will have a disability during their working years that prevents them from being on the job. Most Americans, unfortunately, don’t understand how disability insurance works or how disability is defined in this context.
Purchasing long-term disability insurance, with coverage for at least 5 to 10 years or until retirement age, is a good idea but make sure to review different plan options and riders carefully.
If your employer offers group coverage for short-term disability, opting in is almost always a good idea.
Are disability insurance premiums tax-deductible?
No, your premiums are not tax-deductible and you cannot claim the premiums on your tax return. But if you are paying the premiums upfront with after-tax dollars, which is the case for private disability coverage, you will not have to pay federal taxes on any disability benefits you receive.
For group-sponsored plans, your premiums may be paid at least in part with pre-tax dollars. Any group plan benefits received would be subject to federal taxes.
Can disability insurance costs increase if your earnings grow?
Likely yes. You’re paying disability insurance to insure your salary in the event that you become disabled, and your premiums are based on a percentage of your earnings. You want to increase your coverage as your salary grows.
How much does disability insurance cost per month?
Typically, you’ll pay a base of $83 to $250 in monthly premiums for every $100,000 in yearly earnings. Additional riders, shorter elimination periods, or prolonged benefit periods can increase the cost.
Bottom Line
Disability insurance is a good idea. While very few Americans think they’ll ever need it, 33 percent of us will at some point during our prime working years.
If you invested significant time, training, and money into becoming a physician, you want income protection in the event you become unable to practice medicine.
Rates are affordable, starting at around 1 percent of your annual salary. And the earlier you get coverage, the better. Look at your work benefits. Talk to your financial planner. Or use online tools to get a disability insurance quote online in just a few minutes.
