Disability primer: obtaining full coverage

Individual private disability insurance

The average annual premium per policy for noncancelable disability insurance -- both short-term and long-term -- was $1,920 in the fourth quarter of 2008, according to the member sales report of LIMRA International, Inc., a Windsor, Conn.-based research and consulting organization for the insurance industry. The average premium for a guaranteed renewable policy was $629.

Premiums under a noncancelable policy cannot go up while guaranteed renewable policy providers may change premiums, but only for entire blocks of policies, not individual policyholders.

Even so, the amount you pay for disability insurance can depend on your age, health, history of smoking and gender.

Women generally pay more for individual policies because their average claim costs are higher, according to the FCIC. Premiums also rise as the income you need to replace rises and when you have a riskier occupation, says J. Robert Hunter, director of insurance for the Consumer Federation of America in Washington, D.C.

Policies that pay when you are unable to work in your own occupation cost more than those that only kick in if you can't work in any occupation. Buchanan says the upgrade is worth it, although it's harder to get than it used to be.

Buchanan also recommends buying a policy that includes a provision for cost-of-living adjustments in benefits, either as a standard feature or in a rider.

"If you stay disabled for an extended period of time, inflation will eat up your benefits," Buchanan says.

You can save on premiums by electing a longer waiting period and a shorter benefit period. The waiting period is the amount of time you must be disabled before receiving benefits. Sixty to 90 days is ideal, but you'll need to take your other income sources into consideration and be aware that your first check won't come until 30 days after the waiting period ends.

Your benefit period determines how long you are eligible to receive monthly payments over your lifetime. While a shorter benefit period means lower premiums, make sure your policy will pay benefits at least until your retirement age.