July 14, 2011

How Much Does Long Term Disability Insurance Cost?

I am thankful that I have long term care insurance provided free benefit by my employer.    However many people do not get such a benefit for free.   According to BLS data only 33% of employees in the private sector have access to a long term care insurance plan through their employer.

First of all we have to answer :

What is Long Term Disability Insurance?

Long Term Disability Insurance (LTD) pays you a monthly or annual cash benefit if you become disabled such that you are no longer able to work.    Policy terms differ but a typical policy may pay 60% of your wages from 1 year after the point of disability up until you hit age 65.   Generally policies will pay a % of wages with a cap.  For example an LTD policy might pay 70% of wages with a cap of $5,000 a month.    Policies also often exclude short periods so they only kick in if the disability is long term in nature.  If you are disabled for 6 months then the LTD policy may not take effect.   This is a pretty brief explanation of the nature of LTD.


Just a quick note, Long Term Disability insurance is not to be confused with Long Term Care insurance.   LTD is if you are disabled and unable to work and will pay a cash benefit to help replace your lost wages.  LTC is to help pay for specialized medical care such as you may receive in a nursing home during your elder years.   These are two different things entirely.

Group Rates versus Individual Plans

If your employer happens to offer LTD policy coverage as a group rate then it will probably be much cheaper than if you were to buy a policy on your own.   Employers like mine that do provide LTD coverage often do so without requiring an employee contribution.  However some employers offer LTD as a optional policy.  

Ok, So what Does LTD cost then?

Unfortunately I don't find easy to access references that cite solid numbers for LTD policies.   There are many examples out there, but they are based on just a few examples.   At best all I can do is then cite some references that give some example costs.   This will at least give a ballpark idea of what LTD can cost you.

Costhelper gives a rough cost estimate of 1-3% of your wages.    By this they mean that the premium cost would be about as much as 1-3% of your income.   Generally disability insurance is tied to your income so if you make a higher income you'll want a higher disability insurance rate.   If you assume a 2% rate then someone making $50,000 a year would pay $1,000 a year for the disability policy.

SmartMoney wrote an article Do You Need Disability Insurance? and there they say for individual policies:
"Here's one example from MetLife: A 40-year-old male non-smoking business executive would pay $1,150 in annual premiums for $3,500 per month in benefits delivered up to age 65 with a 90-day waiting period."

The insurer Unum says "Here is an example of an individual policy that may be purchased through an independent insurance agent. A 40-year-old professional man who makes $50,000 a year would pay about $1,700 a year for a policy that would pay him $2,900 a month for up to five years for a covered disability."
Insure.com discusses The Basics of Long Term Disability Insurance and say for group policies that:
"The average annual premium for a new group LTD policy in mid-2009 was $238 per person based on a 158-person group, according to King."

Generally speaking then group policies can often be had for a few hundred dollars whereas individual policies may cost $1000 to $2000 range.    The exact costs will differ based on age, gender and occupation.  

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