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How To Buy Long-Term Disability Insurance

Disability insurance is expensive – often one percent of the insured person's income – so know your options before deciding on a plan.


  • TIP: Consider "own-occupation" coverage, which pays benefits until you're able to return to the same position you had, rather than just any job.
  • Step 1: Check with your state's department of insurance to make sure that any company you're considering is licensed and doesn't have complaints against it. And check the company's financial soundness through a service like Standard & Poor's or Moody's.
  • Step 2: Get rates from several companies; just make sure you're comparing quotes for similar policies. You can buy disability insurance through a broker, insurance agent, or financial adviser. In most cases, you'll need to undergo a physical exam.
  • FACT: Did you know? About one third of workers over age 35 will become disabled for over three months sometime before retirement.
  • Step 3: Weigh your options. Some policies are guaranteed renewable, which means the insurer can't drop you as long as you pay your premium. Others are noncancelable, which means your premium can never go up. Also consider a cost-of-living option, which adjusts your benefits for inflation.
  • TIP: Get a lower rate by taking the longest waiting period – the time you have to wait before benefits kick in – that you can afford.
  • Step 4: Ask your employer if you already have long-term disability insurance as part of your company's benefits package and, if so, how much it would pay you if you couldn't work. Disability benefits are tax free if you pay the premium, but are taxed if your employer pays.
  • TIP: You may be able to purchase extra coverage through the same insurance company that manages your group plan.
  • Step 5: Decide if you want a policy that pays out for five or 10 years, or one that pays until you're 65.
  • Step 6: Consider how much money you'll need to pay your bills if you can't work due to an injury or illness. Long-term disability insurance typically pays 50 to 70 percent of your salary. Your salary is set when you buy the policy, but you can increase the value of the plan if your income rises.

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