Approximately 2.8 million non-fatal workplace injuries and illnesses are reported by private industry employers each year, according to the U.S. Bureau of Labor Statistics. Business owners do their best to create a safe work environment for employees, but accidents may still occur resulting in a serious disability. Long-term disability insurance can provide employees and their families with protection and peace of mind.
Long-term disability insurance may be required if an employee is unable to return to work for at least six months. In some cases, it can extend for many years or until age 65 when benefits generally end. During this time, disability insurance covers a portion of the policyholder’s salary with many different factors impacting the cost of the insurance.
Factors That Influence The Cost Of Long-Term Disability Insurance
One in four 20-year-olds will become disabled before they reach retirement, according to the Council for Disability Awareness. It can help ensure that these individuals receive the compensation that they need to continue caring for their families while they are unable to work. The cost of long-term disability insurance is based on a wide range of factors, such as the following:
When a person purchases life insurance, their age is a major factor in the cost of a policy. The same applies to long-term disability insurance. The older a person is when they purchase a policy, the more it will cost. Younger individuals are usually offered lower rates as they are less likely to suffer a disabling illness or injury. In addition, a younger person is generally able to fight off infections and recover faster from injuries than older individuals who may have compromised immune systems. However, age is just one component that is considered when determining the cost of a disability insurance policy.
In addition to age, the insurance company will also consider a person’s overall health when calculating premiums. People who are generally healthy and have no health problems will often pay less for insurance compared to people with a history of potentially-disabling conditions like arthritis, asthma, and back injuries. Certain risk factors may also influence the cost of long-term disability insurance. Smoking, drug use, obesity, and conditions like hypertension and diabetes can result in higher rates. An insurer may also look at a person’s weight, cholesterol levels, and similar metrics which may indicate possible future medical problems.
Certain occupations are more likely to result in serious injuries or illnesses, for this reason, insurance companies generally charge higher rates for individuals who have risky occupations. Logging, disaster recovery, sawmill operations, professional stuntmen, roofers, pilots, and even certain healthcare jobs that put people at risk for serious illnesses may result in more costly insurance. The riskier an occupation is, the more likely that it will result in a long-term disability which can drive up the cost of a disability insurance policy.
Location can also play a major role in the cost of long-term disability insurance. Rates are generally higher in states where there is a higher percentage of claims. States which tend to carry heftier premiums are typically locations that have a higher number of risky occupations. Every state is different, making it important to do the research in order to determine whether the business is located in a state with higher-than-average disability premium rates. An experienced business insurance broker is able to provide guidance and help business owners compare different insurance policy options.
The coverage amount is one of the biggest influential factors when determining the cost of long-term disability insurance. The coverage amount refers to the amount of money that a disabled person receives during the time that they are unable to work. This amount usually ranges from 60 to 80 percent on average but may be lower or higher in some cases. Ideally, a policy should cover a minimum of 60 percent of a person’s gross (pre-tax) salary. Benefits received from a long-term disability insurance policy are tax-free which means that a person would receive a significant portion of their current take-home pay. Any lower than 60 percent and a person may have trouble paying their existing bills.
The cost of long-term disability insurance is also impacted by the benefit period. This refers to how long the benefits last. Policies can have significantly different benefit periods ranging from two years to 10 years or more. Some policies will continue paying until retirement if a person is deemed unable to work for the rest of their life. The average policy lasts about three to five years. The longer the benefit period, the more expensive the policy will generally be so it is important to consider all options.
Most long-term disability insurance policies have a standard waiting period, also known as an elimination period. The waiting period refers to the time in which a person becomes disabled until the time when they start receiving disability benefits. Some employers will offer short-term disability insurance that lasts either 30 or 60 days which can help cover an employee’s living expenses until the waiting period on the long-term disability insurance is over. Policies with short waiting periods are available but generally come with a higher price tag. The longer the waiting period, the more affordable the premiums.
Speak To Experienced Long-Term Disability Insurance Brokers
It is important to consider other aspects when determining the cost of long-term disability insurance. Most policies will require the insured to exhaust all other sources of benefits to help offset the benefits paid out by the disability policy. This may include workers’ compensation insurance and social security disability insurance. These types of alternative benefits could ultimately reduce the amount of money a person receives each month while disabled. To learn more about factors that influence the cost of long-term disability insurance, speak with an experienced business insurance broker at Business Benefits Group.