Retirement and Estate Planning

Getting Disability Insurance at a Reasonable Cost

One can never anticipate when tragedy will strike. Whether it is a car or household accident or a diagnosis of heart disease or a herniated disc, unanticipated misfortunes are the reasons it makes sense to have disability insurance.

This type of insurance replaces a portion of your income if injury or illness renders you unable to work. Statistically, most people of working age have a greater chance of being disabled than dying.

Premiums for disability coverage vary based on your age, income, the type of work you do, and the policy provisions you choose. In general, the greater the coverage, the higher the premium. Here is what you need to know to get sufficient coverage at an affordable cost.

Benefit amount 

Disability insurance typically pays you 60 to 80 percent of your income should you become disabled. This coverage is designed to provide you with adequate income to cover your basic needs if you cannot work.

Term of benefits 

You may choose disability coverage that pays you for a year, two years, five years, until age 65, or even for life. The longer the benefit period you select, the higher the premium you can expect to pay.

Elimination period 

The elimination period is the waiting time between the onset of your disability and when you first start receiving benefits. You can save money if you agree to a longer waiting period before benefits are paid. The industry average is 90 days, but most policies allow you to choose a waiting period of anywhere between 60 days and two years. If your employer provides paid sick time, you should consider this in selecting an elimination period.


“Noncancelable” means that, once the insurance company has approved you, it cannot cancel your policy unless it stops covering everyone in your occupation. It also means the company cannot raise your premiums. You are likely to pay more for this type of policy than others.

Guaranteed renewable 

A guaranteed renewable policy cannot be canceled, but the company can raise the premiums, provided that it raises the rates for an entire class of policyholders. Premiums for guaranteed renewable policies can be less expensive than noncancelable policies.

Own occupation or any occupation 

Own occupation coverage pays you benefits when you can’t work in your specific occupation. Many professionals, such as physicians, dentists, and attorneys, choose this type of coverage. With an “any occupation” policy, to collect benefits you must be unable to work in the occupation(s) for which you are reasonably suited based on your training and education. Own occupation policies are more expensive than those that consider you disabled only if you cannot work at all.

Employer coverage 

Many employers provide some form of disability income, either in short-term disability, sick pay or a group disability policy. Find out exactly what benefits are provided, how soon they would begin after you become disabled, and how long the payments would last.

Some employers allow you to buy more disability insurance at your expense. Buying extra coverage through an employer group plan is almost always less expensive than buying an individual policy.

Keep in mind that the IRS makes a distinction between disability insurance provided by an employer and that purchased by an individual. If you buy your own policy and pay the premiums, with after-tax dollars, benefits are not taxable. If your employer covers payment of the premiums, benefits are taxed as income.

(Updated and reviewed 2016)

Copyright, The American Institute of Certified Public Accountants