Disability insurance is the most underrated type of insurance and one that I routinely see clients skip. Whoever thinks they will become disabled?
The Hard Truth:
The best disability insurance companies make it easy to get a quote online. Below you can quickly get a quote from top-rated disability insurance companies we recommend, or keep reading to learn more about disability insurance and its uses.
Table of Contents
- Quotes From Top-Rated Disability Insurance Companies We Recommend
- What Is Disability Insurance?
- The Differences in Workman’s Compensation
- What About Social Security Disability Benefits?
- Types of Disability Insurance
- Is Group Disability Enough?
- What’s the Difference Between Owner-Occupation and Any-Occupation?
- How Much Does Disability Insurance Cost?
- How Much Disability Insurance Do You Need?
- Where to Get a Disability Insurance Quote December 2023
Quotes From Top-Rated Disability Insurance Companies We Recommend
- Quotes from the top disability carriers to ensure you find the best rates
- Helps thousands of consumers apply for disability insurance each year
- Rated Excellent on TrustPilot
- Benefit terms range from 3 months to age 67
- Choose your waiting period
- Multiple riders add flexibility to your policy
- Benefit periods from as little as 2 years or all the way to retirement age
- Family care benefit provides coverage for up to a year if policyholder has to take off work to care for a child, spouse, or parent
- 10% discount to business owners and an additional 10% to preferred occupational classes.
- Offers the option of Full Coverage for Mental/Nervous disabilities or a 10% discount for a 2 year limitation.
- Rated A (Excellent) by A.M. Best for financial strength
What Is Disability Insurance?
The idea behind disability insurance is simple.
It operates similarly to a traditional life insurance plan, but instead of paying out upon your death, it pays out if you become disabled.
Coverage for these plans can vary in size. Just like with other kinds of insurance plans, every disability policy is different.
Some plans are going to replace 45 %of your income, while others are going to give more replacement at 65%.
The more replacement coverage you want, the more you’re going to pay for your plan.
The Differences in Workman’s Compensation
When an employee suffers an injury on the job, oftentimes their employer will compensate them through worker’s compensation.
It is important to understand the difference between disability insurance and worker’s compensation – because the two are not the same thing.
The key difference between workers’ compensation and disability insurance is that workers’ compensation (or workers’ comp) pays for injuries that are work-related. Employers will obtain workers’ comp insurance in order to pay for incidents that occur on the job.
If workers sustain injuries on the job, it is oftentimes up to the employer to pay for the person’s medical bills, as well as for the individual’s lost wages if the employee must take time off work because of the injury.
An employee who collects payment via workers’ comp will typically, however, not have a long-term disability, but rather a temporary injury from which he or she will soon return.
On the other hand, disability insurance pays for a percentage of a person’s earnings if the insured is not able to work due to an injury or illness – regardless of whether that injury or accident happened at work or elsewhere.
In addition, if the disability insurance policy is an individual policy (versus an employer-sponsored group plan), the insured will be covered under the policy regardless of who he or she is employed through.
According to the Council for Disability Awareness, less than 5 percent of disabling accidents and illnesses are work-related.
This means that the other 95 percent are not – and that these other 95 percent are also not covered by workers’ compensation insurance.
What About Social Security Disability Benefits?
It can be extremely difficult to qualify for Social Security’s disability benefits. For example, Social Security will only pay benefits if a person is considered to be totally disabled. This means that the individual cannot do work that they did previously, nor can they do other jobs either.
In addition, the person’s disability must have lasted, or be expected to last, for at least one year or result in death.
An individual must also have collected enough work credits in order to qualify for Social Security disability benefits.
You can take a look at the 2021 Social Security Administration limits and rates for OASDI and social security here.
The number of credits will be dependent on the age that the individual when he or she becomes disabled.
With that in mind, the importance of disability insurance becomes even more clear.
This type of insurance can provide you with the additional funds that you need to help pay living expenses – without the need to dip into savings, retirement assets, or worse yet – use credit – for the purpose of paying day-to-day bills until you are back on the job.
If Social Security deems that a person’s situation qualifies, there is still a five-month waiting period before benefits are paid.
This, too, can create financial hardship for many people in terms of paying living expenses – especially if there are added medical costs due to the illness or injury that has been suffered.
So, we know Social Security won’t give you the money you need and workman’s comp probably won’t cover it, so now what?
This is why you should explore a private disability insurance policy.
Types of Disability Insurance
The two main types of coverage are long-term disability and short-term disability.
You can probably guess from the name, but short-term policies are designed to cover employees for a much shorter time, anything shorter than two years.
Long-term disability, on the other hand, is built for anything past two years. A long-term disability insurance policy could continue to pay out for the rest of your life if it’s needed but typically runs from 5-10 years.
Some of the common causes for short-term disability insurance include:
- Having a baby;
- Severe illness; and
- Major injury.
Long-term disability could include a lot of things, but some common causes are:
- Muscular Disorders;
- Cardiovascular Complications; or
- Serious Injuries
Long-Term Disability vs. Short-Term Disability
Aside from the obvious, there are a few key differences between long-term disability and short-term disability.
One of those is the waiting period for a payout.
With short-term, policyholders can start receiving weekly checks as quickly as 1 to 7 days after you file a claim for the policy.
With a long-term disability insurance policy, on the other hand, it can be anywhere from 90 days to 180 days.
If you’re looking at the cost difference between the two plans, short-term policies are going to be significantly more affordable than their long-term counterpart.
Long-term plans can give you years more coverage which could translate to thousands and thousands of additional coverage from the insurance company.
Another key difference between the two kinds of plans is how you can get coverage.
A lot of companies offer their employees short-term disability insurance, but almost no companies have a long-term disability insurance program.
If you want to get long-term coverage, you’ll have to purchase a plan through a private insurance company. If your company offers any type of short-term disability insurance, you should always enroll in the program.
Group, Individual, Multi-Life
Inside of the two main types of disability insurance are several “sub-types” of coverage.
One of those is group coverage.
These are policies that are offered through an employer and are offered to all employees. Group coverage could be either short-term disability or long-term disability.
Employer-sponsored short-term plans are designed to pay for any disabilities which occur outside of the workplace. Short-term disabilities are much more common than long-term disabilities which could impact you for the rest of your life.
Individual Disability Insurance
If your company doesn’t have any sponsored plans, you can purchase a private policy through an insurance company.
You’ll be required to answer some medical questions and depending on the plan, take a medical exam.
Multi-Life Disability Insurance
When you’re shopping around for a disability insurance policy, you’ll probably come across plans being sold as “multi-life plans.”
The idea of these plans is to get several key people in a business (think of several doctors in a practice) to apply at the same time with their plan.
The insurance company markets these policies as multi-life so they can offer simpler underwriting processes and pass some of the savings onto the policyholders.
Is Group Disability Enough?
For the employees who are lucky enough to get disability insurance through their employer, you still might be lacking. Just because you have a plan through your job, it might not be enough.
Let’s say you’re not able to go to work because of an accident. You can’t get to your job and pull in your paycheck, are you going to be able to pay for all of your monthly bills without having to make any extreme sacrifices?
To determine if your group disability insurance is enough, you’ll need to do some basic math.
Look at your plan and see how much coverage it provides.
For this example, let’s say it pays 50% of your salary. Now, take a look at your bills and expenses.
If the total of those numbers is more than 50% of your income, then your group disability isn’t enough.
If you’ve crunched the numbers and come to the jarring realization your group plan isn’t enough, the best choice is to purchase an additional individual plan.
Both of the policies can work together, and your individual plan can pick up the slack left behind.
What’s the Difference Between Owner-Occupation and Any-Occupation?
One of the most important things to understand about disability insurance plans is the difference between an owner-occupation plan and an any-occupation plan.
They may sound the same, but they completely change how your plan operates and the coverage it will give you.
First, let’s look at owner-occupation (sometimes called own-occupation protection). Policies with this protection will only pay out if you can no longer do the duties and tasks required of you by your job.
If you’re an electrician, but you can not do the simple tasks required on a day-to-day basis, then an own-occupation plan will pay you the benefits.
Any occupation policies will only pay the benefits of the plan if you can no longer perform any occupation based on your education and work experience.
As you can tell, any occupation policies have much stricter rules on the circumstances in which they will pay the policyholder.
|Type of Disability Insurance||Description of Disability Insurance|
|Short-term disability insurance||Provides coverage for a limited period of time, usually up to 6 months, and replaces a portion of your income if you are unable to work due to illness or injury.|
|Long-term disability insurance||Provides coverage for a longer period of time, typically until retirement age, and replaces a portion of your income if you are unable to work due to illness or injury.|
|Group disability insurance||Provided by an employer as part of a benefits package, group disability insurance offers coverage to all employees and may be offered as short-term or long-term disability insurance.|
|Individual disability insurance||Purchased by an individual, this type of disability insurance offers customized coverage and can be either short-term or long-term disability insurance.|
|Own-occupation disability insurance||Offers coverage if you are unable to work in your specific occupation due to illness or injury, even if you are able to work in a different occupation.|
|Any-occupation disability insurance||Offers coverage only if you are unable to work in any occupation due to illness or injury.|
|Residual disability insurance||Offers coverage if you are able to work but have a reduction in income due to illness or injury.|
How Much Does Disability Insurance Cost?
Now for the part everyone wants to know, how much is a disability insurance plan going to cost you?
Well, there are a lot of different factors which are going to affect how much the premiums are. It’s difficult for me to give an exact number without knowing your exact situation.
For example, the age of the applicant is going to play a major role in the premium rates. If a 25-year-old applies for a policy, it’s going to be significantly cheaper than a plan for a 45-year-old.
The general rule of thumb for disability insurance is the premiums are going to be anywhere from 1% to 3% of your gross income.
If you are making $100,000, you can budget for $1,000 – $3,000 every year.
As I mentioned, there are dozens of different factors which will completely change how much you pay.
If you’re a smoker, then you’re going to pay much more for your plan.
If you have a riskier job, you’re going to pay more.
The rule of thumb is exactly that.
How Much Disability Insurance Do You Need?
I alluded to the amount of disability insurance earlier in this article, but now let’s take a hard look at how much coverage you should have.
Not having enough disability insurance protection could cause some serious financial strain if something were to happen.
First, let’s look at your living expenses. If you don’t already have a budget, take some time to look at all of your monthly bills (power bill, water bill, mortgage payment, etc.) and your spending (groceries, gas, etc.).
On top of those monthly expenses, add in a few “unexpected” bills as well. You never know when something is going to break or an extra bill is going to pop up.
You want to have some cushion in your budgeting. Otherwise, you end up living paycheck-to-paycheck.
After you have the monthly expenses number, you can do some subtracting.
If you aren’t working, your expenses are going to look very different than they do now. For example, if you aren’t driving to work every day, you probably won’t be spending as much on gas.
You won’t be spending money on work clothes, and you will probably cut out some additional “entertainment expenses” as well.
Now you have a new number, your monthly expenses minus some tweaks.
The next number you want to add to the equation is any income you’ll make from other sources besides your disability insurance plan.
This category can include any money from your investments, money from your spouse or partner’s job (or a second job if they decide to add another job), and any additional disability income you may qualify for.
If you’re the main income earner in your home, then having disability insurance is one of the most important purchases you can make.
Most people, purchase disability insurance for their family and loved ones. For others, they buy a plan to protect their business.
If you’re one of the foundational workers in your business (e.g. an owner, CEO, etc.), then you should consider buying a disability insurance policy for your company.
Keyman plans operate a little differently than a traditional disability policy. With these policies, the business pays the premiums for the plan, and if something were to happen to you and you couldn’t perform your job, then the business is going to get the money from the payout.
These policies are a way for companies to protect themselves against financial struggles if a key person in the business is unable to work because of illness or injury.
The company can use this money to outsource those duties or to hire someone to replace the key person while they are out with a disability.
Disability Insurance for High-Income Occupations
There is a certain group of people for whom disability insurance could have some serious problems.
If you are a high-income earner, the standard disability insurance policy simply may not be enough. Just about every insurance company which sells one of these plans is going to have an income limit.
Regardless of the percentage they replace, they are not going to offer more than that limit.
Typically, these are doctors or lawyers who own their own firms, for example.
Some policyholders may find the insurance company’s limit is below the 60% they offer in income insurance.
If you’re one of these people, there are some things you can do to get the protection you need, regardless of how much money you make every year.
One option is to choose a company that offers higher limits. Each company has different coverage limits on its policy. We can help you shop around until you find one with a high enough limit for your needs.
Another route is to buy two separate plans from different companies. Sure, you’ll pay more in premiums every month, but you’ll have the protection in place if you ever need it.
Where to Get a Disability Insurance Quote December 2023
You now know the basics of disability insurance coverage, it’s time to go out and find a policy of your own.
There are more than 40 insurance companies which sell these plans. As I mentioned, they are all different. Some are going to have higher limits, offer a larger percentage, or have cheaper rates.
You need to find a company which suits your needs.
Before you pick a company, compare the rates and plans of several companies. You don’t buy the first house you see, why would you buy the first policy you find?
Sure, you can use your own time to contact those 40+ companies individually, or you can use a tool that will do the dirty work for you.
If you’ve decided you want to get disability insurance or supplement the coverage you already have from work, check out PolicyGenius. They are one of the few companies out there that can gather quotes from dozens of companies for disability insurance, all in one place.
PolicyGenius allows you to tailor your quotes to exactly the kind of policy you’re looking for; the perfect amount of coverage with the proper waiting period.
They know shopping for insurance isn’t easy, but they make it as quick as possible.