Long Term Disability Insurance Quotes
Total Disability Income Provisions and Premiums Explained
Oct 28, 2009
Even when one insurance company prepares a quote for the same person, average monthly premiums for a long-term disability policy can vary by over 70%.
Components that drive price differences on disability income insurance quotes include benefit payment provisions, total disability clauses and policy options.
This analysis explains how each of these components affects the premium rate for a long term disability insurance quote. Sample disability income premium rates are based on GeoCare International’s optional Long Term Disability Plan for qualified expatriates in the petroleum, engineering and mining industries.
Calculating Long Term Disability Premiums
Typically, long term disability premiums are quoted as rates per $100 of coverage. Both the monthly premium and amount of coverage depend on the percentage formula that defines how much of the applicant’s pre-disability earnings are replaced during total disability.
While some long term disability policies pay as much as 80% of pre-disability earnings, most quotes range from 50% to 70%. The most popular quoted coverage is 66 2/3% of pre-disability earnings subject to a maximum benefit of $5,000.
For example, a 40-year-old woman who earns $4,000 monthly is quoted a rate of $3.5 per $100. If she chooses to insure 50% of her monthly earnings, the quoted LTD premium is $70 per month ($2,000 times $3.5 divided by $100). If 70% of monthly earnings is elected, the monthly LTD premium for the increased benefit rises to $98 ($2,800 times $3.5 divided by $100).
Payment Provisions that Increase Quoted Rates
Also called the elimination period, the benefit payment waiting period can significantly change the quoted LTD premium. This waiting period defines the number of days of uninterrupted total disability before benefit payments start. A longer waiting period reduces how much the insurance company has to pay out. Therefore, the sample quoted rate for a 50-year-old male is $3.10 per $100 for a 52-week waiting period compared with $5.02 per $100 for the shorter 13-week elimination period.
The maximum benefit payment period also directly impacts the quoted LTD rate. A long term disability policy that pays up to 5 years only will require a much lower premium than disability income insurance with a maximum payment period to age 65 or age 70.
The all sources maximum defines how much the LTD coverage will pay after adding up disability income from other sources. These include government disability plans and Workers Compensation, auto insurance coverage and group benefits such as association, retirement and pension plans.
Total Disability Definitions Also Affect Premium Quotes
A policy with the own occupation definition of total disability costs more than a comparison quote for any occupation disability insurance. Under own occupation coverage, claims will continue as long as insured persons cannot perform the duties of their own occupation even if they are able to do a different job.
The any occupation is much more restrictive, because claim payments end as soon as an individual is able to do any meaningful work for remuneration. An airline pilot can expect to receive a much higher premium quote for an LTD policy with an own occupation definition, since a totally disabled pilot could feasibly be rehabilitated to do less demanding work. In turn, this would end benefit payments under any occupation LTD coverage.
Different own occupation periods are available, ranging from 12 months to 60 months. The longer the own occupation period, the higher the quoted premium for the corresponding total disability policy.
Long Term Disability Policy Options
Insurance companies have developed policy options that add to the cost of a long term disability insurance quote. The cost of living adjustment increases a claimant’s benefit payment amount annually. The COLA factor is based on the published consumer price index and is typically has a maximum ranging from 1% to 6%.
Other LTD quotes offer an extra benefit that contributes an extra percentage of percentage of pre-disability earnings to the claimant’s pension plan.
Some long term disability policies also have a survivor benefit that pays a predetermined amount to the claimant’s spouse if the totally disabled person dies while eligible for monthly disability payments. Commonly, that death benefit equals a multiple of the disabled individual’s last monthly benefit payment.
The rehabilitation expenses and re-employment allowance policy options are sold together by some insurance companies as a packaged add-on. Rehabilitation expenses are considered on a case-by-case basis, with a maximum based on a factor like 3 or 5 times the claimant’s most recent monthly payment. In contrast, the re-employment allowance is more of a group benefit incentive which pays an employer some multiple of the insured person’s last monthly claim amount for re-employing the claimant for at least three consecutive months.
Pricing a Long Term Disability Insurance Policy
Like the benefit payment provisions and more generous own occupation definition for total disability, inclusion of the above LTD policy options can significantly drive up the premium cost on an insurance quote.
Consumers are well advised to create their own checklists to seriously evaluate the benefits of paying for these additional features.
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