What Factors Influence The Cost Of An LTD Policy?

by on October 21, 2011

There are a number of factors that set the cost on an individual long-term disability insurance policy, including:

  • Age- Younger individuals pay less in LTD insurance premiums per year than do those persons who are older and more likely to become disabled.
  • Benefit Amount- LTD policies that replace larger percentages of a person’s income cost more.  A policy that replaces 80 percent of your income is considerably more expensive than one that only replaces 60 percent of your income.
  • Benefit Period- The shorter the benefit period, the less costly the LTD policy.  For instance, a policy with a 5-year benefit period will cost much less than a policy that pays benefits up to age 65, or the Social Security retirement age.
  • Current Health Condition- Your health condition dictates whether you qualify for standard rates or rates that are higher.  A LTD policy may also exclude coverage of any health conditions the exist before the policy is issued (these are called pre-existing conditions).
  • Definition of Disability- A policy that pays benefits in the event that you are incapable of performing the duties of your own occupation is more costly than a policy that pays benefits if you are no longer able to perform the duties of any job for which you are adequately qualified.
  • Discounts- Many insurance providers offer discounts for multiple policies issued at the same time for multiple people, and also when an employer (or organization) collects premiums for individual policies from employees and pays the insurance company.
  • Magnitude of Disability- A policy that only pays benefits if the policyholder is permanently and totally disabled is less expensive than a policy that also pays benefits for temporary and partial disability.
  • Gender- Women typically pay more than men for an individual LTD policy, because claim costs for women are considerably higher than those for men.  However, under a group LTD policy, men and women normally pay the same amount.
  • Elective Benefits- For an additional premium, some policies provide added benefits, like cost-of-living increases or the choice to purchase greater benefits in the future.
  • Tobacco User/ Smoker- The majority of insurance companies either provide discounts to non-tobacco users or add an additional fee  to the premium of tobacco users.
  • Type of Occupation- A policy that covers a high-risk occupation will, of course, cost more than a policy covering a low-risk profession.
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