How Much Does Disability Insurance Cost?
Disability Insurance, Selling DI
Disability income insurance is
different from all other types of insurance. The cost of your car
insurance is based on how many years you’ve been driving (your
age), the value of your car, your driving history and a few other
factors. The cost for disability income insurance is based on
similar components such as age and your medical history - however, unique factors affecting the cost of disability insurance are related to the policy features chosen by the insured. The decisions your client makes about policy design also impact the price.
Your client can expect to pay between 1-4% of his/her annual
income for a disability insurance policy. This annual cost seems high when
compared to a client's auto insurance coverage but consider the length of time benefits are received and the amount of money your client could receive throughout
the life of the policy.
Below are details about the factors affecting the cost of a
disability insurance policy.
Insurance companies underwrite
disability coverage based on the risk of an applicant filing a
claim. The older we get, the greater the risk of experiencing a
disability. This increased risk is not only related to the aging
process. The more time we spend in the workforce also increases
the risk for occupational and/or repetitive injuries.
Because there is a greater risk, disability insurance is more
costly for older people. This is one of the many reasons we
encourage professionals to think about disability income insurance
early in their careers when it’s more affordable.
All other factors being equal,
women can pay up to 40 percent higher premiums for disability
insurance. While this may seem unfair, from the insurance
company’s perspective, women typically have more risk of
experiencing a disability. Women suffer more disabilities that
impact their careers and statistically file more claims than
men. Disability insurance claims for women also typically last
Something women can do to help even out the premium discrepancy is
to find a policy that offers unisex rates. A unisex rate can
reduce a woman’s insurance premium by 30-50 percent. Unisex rates
are common among multi-life cases – such as a group of co-workers
from one employer or a professional association – where the
insurance company can spread the risk over multiple customers.
Insurance companies will pay
close attention when assessing a potential insured's health.
Clients will be asked about medical history and current health
conditions. These questions will also include past and current
tobacco use, current medications and dosages, etc. Your client will also likely have to submit to a
The paramedical exam is like a physical checkup. An independent,
third-party vendor will conduct the exam which is paid for by the
insurance company. The paramedical examiner will record the
applicant's height, weight, body mass index, pulse and blood
pressure. The examiner will also collect blood and urine and other
data depending on medical history and the requirements of the
ExamOne is an example of one company performing paramedical
examinations. Find out what clients should expect in their exam here.
The paramedical examiner will also ask several questions about
your health. Some questions will be repeats of what your client
provided on the application. These include:
The answers provided will be
used to validate the health information provided in the application, but they'll also inform underwriters of any medical
concerns that could affect the insurance carrier's risk.
- Family medical history
- Pre-existing conditions
- Medications you’re
- Whether you drink
alcohol or use tobacco
How much a client pays for
disability insurance heavily depends on what he/she does for a
living. A pilot potentially encounters more risk in their daily
duties than someone working in an office. A less obvious
comparison is a construction worker and a construction foreman.
The construction worker performing the manual labor has more risk
than the foreman who is in a managerial role. Most insurance
companies will also ask questions about the regular duties
performed, to get a better understanding of day-to-day
Different jobs are grouped into specific risk classes; these
classes are slightly different for each insurance company. The
occupational classes are numbered on a scale of 1 to 5 or 6.
Typically, the higher the number, the less risk an insurer
considers that profession. Occupations with lower numbers have
more risk and higher premiums. Factors considered when
establishing occupation classes include:
Because there are differences
in occupation classes and insurance coverage features between
disability insurance companies, we typically provide quotes from
multiple carriers for each client.
- The likelihood of
becoming disabled because of risk associated with a particular
- The amount of strenuous
- The probability of an
insured returning to work following a disability
- The disability claim
experience associated with the profession
The amount of disability
insurance money an insured can receive is based on a percentage of
income. Therefore, an important part of the underwriting process
and determining how much your client's cost will be is based on
income. This is done through financial underwriting. The insurance
company’s underwriter may look at the following:
For underwriting purposes, income is considered earned if a
disability would stop or reduce it. Investment or business income
that is not dependent on your client's ability to work will not be
included in financial underwriting.
- Earned income
- Unearned income – income
from property, pensions, inheritance, etc.
- Overall net worth
- Bankruptcy history,
Clients will have to provide personal tax returns from the previous year. In many cases, the insurance company will also want to see pay stubs, to help calculate year-to-date earnings. If your client is a business owner, the underwriter will also want to see business tax information.
Where You Live
Where your client lives will
greatly impact the cost for disability insurance. The difference
could be as much as 30 percent. The variation in cost is based on
- State regulations. Some
states have more regulation on insurance products than other
states. This makes it more expensive for insurance companies
to get products approved by a state’s insurance department.
Carriers frequently limit the products they offer in states
with strict regulations. Fewer carriers mean less competition
which can also increase the cost.
- Claims history in
states. Insurers also base their rates on the claims history
in a particular region or state. The more disability claims an
insurer experiences in an area, the more it will charge all
customers in that area.
- Living costs and income
levels. Disability insurance cost is based on the insured’s
income. Therefore, states and regions where people earn more
income and have higher costs of living make income replacement
Disability Insurance Plan Options
that Affect Cost
Other factors that affect
premium costs are choices your client makes when selecting a
policy. Insurance carriers offer options for some plan design
The Benefit Length refers to
amount of time the policy will pay out benefits. The longer the
insured receives payments, the more the policy will cost. Some
policies pay a monthly benefit for a specific period, such as 10
years. Others pay until the insured reaches a certain age. Most
carriers offer a few options that’ll help your client tailor the
policy to their specific needs. Some clients may prefer a longer
benefit period and feel the additional cost is worth extending
Disability insurance policies
include a waiting period, which is sometimes called an elimination
period or qualifying period. It’s the amount of time between when
a disability occurs and when benefits will start being paid.
The elimination period for disability insurance is like the
deductible on your auto insurance. It’s the part your client pays
out-of-pocket before benefit payments begin. The longer the
waiting period on a disability insurance policy, the less the
insured will pay in premium.
If you have any questions or
want to learn more, please give your Local Sales Rep a call!