You are more likely to need disability insurance than life insurance during your working years -- at age 40, you have a 21 percent chance of becoming disabled for 90 or more days before age 65, but only a 14 percent chance of dying. Unfortunately, comparison shopping for coverage is tricky at best because of lack of uniformity in the market. The complicated nature of disability offerings makes it doubly important to find a good agent, one that specializes in disability.
A couple of firms stand out in this area. Northwestern Mutual is a strong company that only sells through its own agents. Lankford recommends Guardian as another good high-end insurer. Always check for complaint records with your state insurance department when shopping for disability insurers.
According to Lankford's book, for a policy paying $3,000 a month for life, 40-year-old men can expect to pay $1,500 to $2,500 per year; for women of the same age, premiums run $2,500 to $3,500 per year. As you can see, coverage can more than pay for itself in the first month alone.
It's best to talk with an expert and maybe a financial planner when determining coverage needs. Disability offerings differ markedly from company to company. Some policies, known as "own-occupation coverage," pay out if you can't perform a particular job but are able to do another job. Other policies only pay out if you are completely unable to work. Still others protect against loss of income due to disability, but allow you to take a part-time job.
Match your disability coverage to your profession. If your job is physical and highly skilled -- for example, if you're a surgeon -- you may want coverage that pays out if you can't do your specific job.
Disability coverage is often offered through your work, but benefits are taxable when the employer pays the premiums. Because disability insurance generally pays out only 60 to 65 percent of your salary, the after-tax payout would reduce your income further. It may make sense to supplement with private insurance. You can cover up to 80 percent of your income if you supplement, it is portable between jobs and premiums usually don't increase over time.
Lankford suggests checking out the following features:Cost of Living Adjustment (COLA) increases your benefits to keep up with inflation. Skipping this option could save you 25 percent in premium costs, but may leave you with too little coverage.
Noncancelable and guaranteed renewable means they can't cancel your policy or raise rates unless a premium change is made for an entire class of policyholders.
Residual benefits pay even if you drop to part-time work, so you don't need to be completely disabled in order to receive benefits.
Elimination period is the amount of time that must elapse before your benefits kick in. The longer you can go before taking benefits, the more you can save on premiums.
Riskier lifestyles pay more for disability insurance, so if you give up skydiving or smoking, let your insurer know.