Is Disability Insurance Expensive?

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   William Bridgers

   Specialist, LTCi, DI, Annuities, Life, Designs In Life, LLC, Utah

   Disability Income insurance (DI) being expensive is a relative question, and the question back is "Relative to what?"Then, it becomes a question of value:  "Does the value provided by a policy that replaces up to about 2/3 of one's income if they become unable to work due to accident or illness justify the premium the agent is showing me?"First, let's just deal with the question of cost.  Disability income insurance does become expensive the older one gets.  Whereas the premium for a DI policy might run about 1-2% of one's income in their 20's, it could cost about 4-5% of their income in their late 40s or 50s.  After age 60, few carriers will even consider an application for DI insurance (although there are specialty carriers that will write "term" DI over that age).DI is a complex insurance contract and has many "moving parts".  The more risk you want to transfer to the insurance company (amount of income to replace, inflation protection of income being replaced, future purchase of monthly benefit without the need to medically qualify, to name a few), the higher the premium.Obtaining DI insurance through employee benefits may cost nothing - the employer picks up the tab for all employees.  There may also be options to "buy up" additional coverage not provided in the employer-paid portion of the coverage.  This is an inexpensive way to get at least some coverage against the risk of not being able to work for an extended period of time.Buying one's own DI contract, however, puts the policyowner in control of all costs and coverage available from the insurance company.  Whereas group DI can be canceled without notice by an employer, and when one leaves employment with that company DI coverage is rarely portable, owning one's own policy usually provides the best, long-term solution to the problem.  When you own your own DI, your coverage cannot be cancelled.  Premiums may also be guaranteed to never go up.  And, regardless of where you work after getting your own policy, you're covered.So, is DI expensive?  Run the numbers on yourself.  If you couldn't work for an extended period of time - or never be able to work (permanent and total disability) - how would you pay the cost of living?  Mortgage payments?  Food?  Rent?  Clothing?  Car payments?One is more likely to experience a disabling event in his/her lifetime than to die prematurely.  Insure your paycheck.  The cost is worth it.

   Answered on July 4, 2013

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