Disability Insurance Cost: Average Rates & What Drives Them

Disability insurance replaces part of your paycheck if an illness or injury keeps you from working. Short term policies cover a few months, and long term policies can pay for years. The cost depends on how much income you want to protect and for how long.

Unlike many insurance products, disability coverage is commonly priced as a share of income. That makes a rule of thumb possible, which this guide applies to different salaries. Individual quotes will differ, and many people get coverage through an employer instead of buying it alone.

The table above converts the percentage into dollars for four example salaries. Each row shows the low and high ends of the range. The same range applied to the whole year is below.

Two people with the same salary can land at opposite ends of the range. A younger, healthy buyer in an office job usually sits at the low end. An older buyer, or someone in a physically risky job, usually pays more.

• Age and health at the time you apply.
• Occupation: risk class affects the premium.
• Sex: Mercer Advisors notes that women often pay more.
• Benefit amount: higher monthly benefits cost more.
• Benefit period: a policy that pays longer costs more.
• Elimination period: a longer wait before benefits begin lowers the premium.
• Options such as a rider that adjusts benefits for inflation, or a clause that stops the insurer from canceling your policy.

A noncancelable clause can add to the premium, according to the same source, and the amount depends on the insurer.

Employer plans are usually cheaper than individual policies. The employer often pays some or all of the premium, and group rates are based on the pool of employees.

Group coverage has limits. Benefits may stop if you leave the job, the plan may replace only part of your pay. Read the summary plan description for the definition of disability, the waiting period, and how long benefits last.

The two sources agree on the monthly range for a 100,000 dollar salary because they share the same rule of thumb. That makes the number a general guide, not a quote from an insurer. CNBC Select attributes the 1% to 3% rule to the advocacy group Life Happens. The actual range for you depends on your occupation and health.

Two choices change the premium more than most buyers expect. The elimination period is the time between the start of a disability and the first payment. A longer wait means the insurer pays less often, so the premium drops. The benefit period is how long payments continue, whether for a few years or until a retirement age. Longer periods cost more.

Many people pair a long wait with savings or short term disability coverage to bridge the gap. How that fits your finances is a question for a licensed insurance agent or a financial professional.

Short term disability usually replaces a larger portion of pay for a shorter period, and long term disability replaces a smaller portion for longer. NerdWallet puts the typical replacement rate for long term policies at 40% to 60% of base salary. Insurers also limit total coverage across all policies, so you may not be able to replace your full income.

Collect your income, job duties, and health history. Ask several insurers or an independent agent for quotes on the same benefit amount, elimination period, and benefit period. Check whether the policy covers your own occupation or any occupation, since that definition affects when benefits are paid.