How to Lower the Cost of Disability Insurance

Disability Premiums can be Very Expensive

Jul 16, 2009

Disability insurance can be expensive depending on the features that are included. By customizing a disability policy, one can lower the price of disability coverage.

Depending on the monthly benefit, health, and age, disability insurance can be very expensive. However, there are ways to customize the coverage in a disability policy that can result in large cost savings in premiums at the expense of coverage levels.

Group Disability Plans

For those in poor health, employer group disability insurance policies may be the cheapest, and only, option to get coverage. Nearly all individual policies require medical underwriting, which could result in much higher premiums or outright denial of coverage for those who are not in excellent health.

One disadvantage is that employer group disability insurance requires no underwriting only during the first month of employment. After the first month, most employer policies will require medical underwriting just like individual policies. Also, the coverage is often not portable upon termination, since by definition there is no income to insure after being terminated from a job.

Reduce the Disability Benefit Amount

If premiums are not paid by a third party such as an employer, disability benefits are tax free. Depending on the after tax amount of money needed per month, it may be prudent to reduce the monthly benefit to save on premiums. Although the maximum monthly benefit in most disability policies is 60% of monthly income, the tax free benefit makes the benefit more valuable than one would think.

Lengthen the Waiting Period

Most disability insurers will lower the cost of premiums significantly if the applicant lengthens the waiting period before a policy will pay out. Changing the waiting period from the standard one month to three months or even six months may be a good move, especially if one has sufficient savings or other income during the waiting period.

Definition of Disability

Another way to save on premiums is to allow the insurer to deny benefits based on a stricter definition of disability. Own occupation disability coverage is the best, but most expensive. The insurer is required to pay benefits if the insured cannot perform the duties of his occupation due to disability. For example, a disabled nuclear physicist who can't do his original occupation, but can work a part time job teaching physics at the community college can still collect benefits.

Any occupation disability coverage is far worse, since the insurer will halt benefits once the beneficiary can work at any occupation suitable given his education and training. For example, a disabled nuclear physicist can be denied benefits if he is able to teach physics at a college, even at a much lower salary. Although the cost savings of going with the any occupation policy can be significant, the difficulty of collecting a disability benefit may not be worth it.

There are many choices to be made when considering the cost of disability insurance. By investigating all coverage options in a policy, most consumers can make the right choice that meets both their budget and insurance needs.

The copyright of the article How to Lower the Cost of Disability Insurance in Insurance is owned by John Wu. Permission to republish How to Lower the Cost of Disability Insurance in print or online must be granted by the author in writing.