What’s in a Premium?

  • Higher monthly benefits — It stands to reason that a policy that pays $5,000 per month is going to have a higher premium than one that pays $2,000 per month.
  • Shorter elimination periods — The elimination period is how long you have to be out of work before being eligible for benefits to be paid. If you have a policy that provides benefits after only 30 days, that’s going to be more expensive than one that provides benefits after 90 or 180 days.
  • Longer benefit periods — The benefit period is how long you are eligible to receive benefits. If the insurance company knows that they may have to pay you util age 65, they will charge you a higher premium than if they knew they might only have to pay for 2 years.
  • Optional riders — A “rider” is a feature that you can add to your policy for an increased premium. These are things that provide more value to the coverage such as cost of living increases, coverage for partial disabilities, and future increase options.
  • Your occupation — Jobs with higher levels of manual labor typically have higher premiums than “office jobs”. The risk of being unable to work outside with your hands is generally more substantial than someone who sits behind a desk all day.
  • Your age and sex — Generally, the older we get, the more medical history we have, and the greater the chance that that medical history might keep us from working at some point. Sex also plays a role in the pricing of insurance policies. The claims experience of insurance companies for disability (called morbidity experience) is generally higher for females than it is for males. Incidentally, the opposite is true for life insurance where males are more expensive than females.
  • Your health — Disability insurance is medically underwritten, so they do look at your health when assessing the risk. There are certain medical conditions that will increase the risk of a claim to be paid, and this can affect the cost of the coverage.

Is it Worth it?

How Much is Disability Insurance?



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