Disability Insurance Cost Based On Job Occupation
How much you will pay for individual disability insurance heavily depends on what you do to earn a living.
To determine the pricing and benefits of policies, disability insurance companies group jobs into specific occupational classes. These classes take into account the hazards of the job. Another factor is the claim experience associated with certain professions.
Insurance companies generally classify occupations on a scale of 1 to 5 or 6. Typically, the higher the number the lower the rate available from the insurance company.
Insurance companies also have to assess jobs based on the difficulty in returning to work following a disability. Thatâs because certain disabilities would hinder the ability to do some jobs, but not others.
The following two charts show the difference in long term disability insurance premium costs for a 40-year-old earning $65,000 a year getting benefits for five years, based on four classes of occupation:
|Gender and Profession|
Prices Vary By Policy And Provider
Like all insurance policies, the cost varies depending upon the insurance company and the specific long or short-term disability insurance policy you choose.
For physicians, here are the main factors that will determine exactly how much your disability plan will cost:
- Your medical specialty
- Where you live
- The addition of optional riders
> Most physicians spend between 2% and 5% of their gross income on insurance premiums. For policies that pay benefits of $10,000 per month, premiums typically range from $200-$500 per month or $2,400 to $6,000 per year.
The majority of disability insurance policies will pay you 60% of your gross income as a rule of thumb and cap the benefit at approximately $15k to $17k per month. In order to receive a benefit of $17k per month, youll need an annual income of about $336,000.
Premiums increase as you age so the older you are, the more you can expect to pay. In addition to age, gender is an important factor in determining premium costs as well.
Women pay more.
In fact, women payout between 20% and 60% more than men of the same age in the same specialty. There are two main factors that insurance companies consider when charging higher rates to women.
Women have a higher probability of making disability insurance claims, due in part to complications with pregnancy. In addition, women are usually disabled for longer periods of time. In general, women tend to live longer than men.
How Much Can You Receive Through Disability Insurance
Disability insurancecan help you and your family pay for necessary expenses like your mortgage, car payments, utilitiesandgroceries.
If you earn $50,000 per year you may be eligible to receive a monthly benefit of $2,975, giving you a take-home pay of nearly $36,000. If you earn more, like $120,000, you could qualify for a monthly benefit of just under $6,000, giving you a take-home pay of $71,100.
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Why Is Individual Short
Well, because accidents happen and no one ever expects the unexpected. It’s safe to say that the majority of folks out there depend on their income to maintain their lives. And if you can’t work due to a disability or illness, you still need some sort of cash to come in, because those bills aren’t going to just go away.
With disability insurance, a percentage of your salary is paid out to you to serve as income replacement and keep those bills at bay.
So really any disability insurance is important to have. Many employers offer some sort of group disability, but there are often holes in coverage and limitations, which is why an individual policy should often enter the mix, to help keep you going strong.
Of course, many who have group disability don’t know about their potential coverage gaps and just assume it’s good enough, but an independent insurance agent can take a look at your existing coverage and help find you the right mix of protection to prep for the unthinkable.
Another important factor to consider is if you have long-term disability insurance, there’s what’s called an elimination period, which is the time between the injury or diagnosis and your payout. In some cases, it can be a few months before you’re paid out any sort of money for bills.
This is where a short-term policy can help close up that period where you aren’t bringing in any money.
What Are The Types Of Disability Insurance
Now, there are two types of disability insurance youll see a lot of: short term and long term. They basically do the same thing in how they replace part of your monthly salary. But well get more into that later.
Even though they do the same thing, short-term and long-term disability insurance have some differences you need to know about. Heres how they stack up:
Why would you get it?
Only if your employer offers it at no cost to you
If you rely on your income and you dont have savings to replace it long term
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Andoptional Factors That Vary By Person
- Coverage amount: The amount you receive each month when you cant work. It should be between 60 to 80 percent of your monthly salary. The benefit of an individual policy usually isnt taxed for a group plan if paid in part by your employer, the benefit will be taxable.
- Benefit period: The length of time you can receive benefits. For short term disability this will typically not be more than a year for long term disability it could range from two years to retirement, or until you recover from your disability.
- Waiting period: Also called an elimination period, its the amount of time after you are disabled until you can start receiving benefits. It will generally be shorter for STD and longer for LTD.
What Is Disability Insurance
Someone once said if youre not sure where to start, start at the beginning. And its a good thing to know what disability insurance is before getting into the nitty-gritty of the costs.
Simply put, disability insurance replaces your lost income due to a disability, illness or injury, normally covering between 40% and 70% of your salary. There are several different types of disability insurance that may apply to you, like:
Government-backed disability programs:
- Social Security Disability Insurance: This is offered by the federal government and is a federally funded disability benefits program. Sounds like a big deal doesn’t it?
- State disability programs: State disability programs are in just a few states across the country and offer temporary disability insurance.
For this article, though, everything will be focused on individual disability insurance, the kind you get outside of your employer.
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How Much Does Disability Insurance Cost Per Month
In the market for disability insurance? Then you’re probably wondering: “How much is disability insurance going to cost me?”
The average cost of disability insurance is typically between 1 percent and 4 percent of your annual income. Another rule of thumb is that you should expect to pay between 2 percent and 6 percent of your policyâs monthly benefit amount in premium. Of course, you may pay more or less than these ranges depending on personal factors, job occupation, and policy choices.
In this article, we cover all of the factors that determine disability insurance cost, including:
Read on to learn more.
How Much Disability Insurance Cost
The average cost of disability insurance is typically between 1 percent and 4 percent of your annual income. Another rule of thumb is that you should expect to pay between 2 percent and 6 percent of your policys monthly benefit amount in premium.21 jui. 2019
Also, how much is disability insurance monthly? VLTD benefits start six months after your date of disability or when VSTD benefits end, whichever is later. The plan pays 60 percent of your eligible earnings, with a maximum benefit payment of $15,000 per month, and benefits can last until your Social Security normal retirement age.
People ask , how is disability insurance calculated? Calculating Benefit Payment Amounts. Your Weekly Benefit Amount depends on your annual income. It is estimated as 60 to 70 percent of the wages you earned 5 to 18 months before your claim start date and up to the maximum WBA. Note: Your claim start date is the date your disability begins.
, does disability cost the employer? Employers do not pay for the California Disability Insurance and Paid Family Leave benefits. Both are funded by workers through the State Disability insurance deduction from workers paychecks.
, is short-term disability full pay? When you take advantage of your short-term disability benefit, your time off is paidbut that doesnt necessarily mean youll be getting your full paycheck. The amount youll earn is dependent on your specific plan. Some plans offer full salary replacement, but most dont.
Is It Smart To Get Disability Insurance
If you work in an injury-prone profession, you should definitely invest in disability insurance. Disability insurance is like life insurance. If your family doesnt rely on your income, then you probably dont need to buy it. If youre the breadwinner, you better have some disability insurance, he said.4 mar. 2021
How To Get Disability Insurance
You can get disability insurance by finding out if your employer offers a long-term disability insurance plan. If they dont, then you need to get in touch with an insurance professional. Dave recommends Zander Insurance. Theyll walk you through the process and help you get the right amount of disability insurance for your specific situation.
Dealing with a disability can be scary enough without the extra worry of how youre going pay the bills. Thats why protecting your paycheck with the right kind of disability insurance is a critical part of keeping your family and future secure. To get started in finding the best disability insurance option for you, check out our new Coverage Checkup Tool today!
About the author
Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.
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How Your Occupation Affects Your Disability Insurance Policys Cost
This is the characteristic most people know is required when they ask how much does disability insurance cost.
Disability insurance is based largely on your occupation. Each company has guides for their agents that are pages upon pages of job listings, duties, and how to classify them when quoting.
Some jobs, such as truckers, may sound difficult to insure, but there are several companies that will take them. Short haul owner-operators get decent rates.
Other professions, such as musicians, may seem easy to cover but are nearly impossible to do so .
Like age and gender, this one comes down to claims. The more likely it is for a profession to make a claim , the lower your occupation class.
Your Profession Dictates Your Occupation Class
Occupation classes are typically expressed as letters and numbers.
A lower occupation class is normally a B, A or 1, whereas the higher occupation classes are 4, 5, and with some companies, 6.
Medical professionals have their own classifications but follow a similar format. Where an office worker might be a 5A, a medical professional may be a 5M or 5P.
This is important because most companies that write a lot of physician disability insurance will often offer specialty specific benefits.
These seemingly arbitrary numbers and letters dictate the cost of your policy.
A 35 year old healthy, non-tobacco male rated 2A would pay 75% more for his long-term disability insurance policy than an identical individual with a 5A occupation class.
Type Of Disability Insurance
There are two main kinds of disability insurance: short term and long term. Short term disability insurance is meant to protect you if you suffer a disability that prevents you from earning a paycheck for weeks or months. Short term disability benefits can start within two weeks of becoming disabled, and the coverage typically lasts between 3 months and a year.
Long term disability insurance is meant to cover much more serious illnesses and injuries. The disability benefits can continue for years, or even until retirement. On the other hand, long term disability benefits typically dont start until youve been unable to work for a period of months. Because the benefits could potentially last for decades, you can expect to pay more for long term disability coverage.
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How Much Coverage You Need Will Impact Your Costs
The cost of your plan will be determined, in part, by how much your monthly benefit will end up being, relative to your income. The more of your monthly salary you want your benefits to cover, the higher the premium will be.
Its best for you to calculate how much of your income is necessary to cover your bills for an extended period of time. Having an idea of how much your monthly budget is dedicated to essential bills will help you determine how much coverage you need when choosing potential plans.
Adding Policy Riders Will Increase Your Costs
Many disability insurance policies can be underwritten with additional and optional riders attached. These riders offer added benefits, but for every one you choose, the average cost of your premiums will be more expensive.
Its essential to weigh the pros and cons of adding these riders. In many cases, the extra cost is well worth the added benefit.
Here are some of the most common disability insurance riders and why theyre so important:
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Questions To Ask Yourself
When youre thinking about buying long-term disability insurance, ask yourself these questions, Hoffman suggests.
1. How much of your income would you need to replace to maintain your lifestyle if you became disabled and couldn’t work?
Use the answer to determine the monthly benefit to select.
2. How long could you wait before the disability benefits kicked in?
This will determine the “elimination period” the number of months you would wait after becoming disabled for the policy to pay out. A typical elimination period is 90 days, but you can choose shorter or longer periods. The longer the elimination period, the lower the insurance price.
3. How long would you want the benefits to last?
For some occupations, such as plumbers and carpenters, benefits are limited to five years on most policies, Hoffman says. For desk jobs, you can choose a benefit period to last a certain number of years or up to a certain age, such as 65. The longer the benefit period, the higher the price of the policy.
4. How broadly would you define “disability”?
Tinker with the benefits if the price quote is too high. Hoffman recommends:
Start by increasing the waiting period before benefits kick in
Reduce the payout period
What To Consider When Buying Disability Insurance
If you’re considering disability insurance, make sure you:
- check with your employer to see if you already have group disability coverage with your employer’s plan
- shop around, especially if you’re considering private disability insurance
Consider group insurance offered through a union, guild, or professional or alumni association. Premiums for this type of coverage usually increase as you get older. You’ll need to renew your insurance every few years.
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Best For Income Replacement: Northwestern Mutual
Why we chose it: Northwestern Mutuals financial strength enables them to support disability policies that may pay up to 100% of your salary with fast underwriting times.
Offer disability policies that may replace up to 100% of your salary
Streamlined underwriting decisions to 24 hours
Special policies for doctors, dentists, and other self-employed occupations
Must consult an advisor for a quote
Does not advertise terms, such as average elimination periods or policy length
Northwestern Mutual is a financially sound company that offers short- and long-term disability policies that are highly personalized. They advertise that they offer short-term disability coverage that pays between 50% and 100% of your salary. That kind of potential protection earned it our Best for Income Replacement honors.
Also, many of the policies we reviewed do not provide disability coverage for higher-income individuals. Northwestern Mutual offers a Medical Own-Occupation policy that is specific to doctors and dentists, which caters to those who traditionally have higher incomes and may need partial to full benefits. The own-occupation part of the policy means the insurance company will pay you disability benefits if you cant work in your specific occupation but could work in another capacity.
Factors That May Affect The Price Of Monthly Insurance Premiums
Some policyholders have access to a group long-term disability policy through their employer. Group policies tend to offer less expensive premiums. Additionally, certain employers may pay a portion of their staffs premiums, or cover the entire amount. Doing so might greatly reduce the cost of this type of policy.
If you are self-employed or do not have access to a group long-term disability benefits through your employer, you may be able to access a group coverage plan through your labor union or other occupational organization. Alternatively, you may choose to purchase your own individual policy, which may affect the cost of your monthly premium.
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