Do You Need Disability Insurance?

If you're going there on your own, you should know that unlike the life insurance marketplace, which has literally hundreds of providers, many of them well rated, there are only a handful of disability companies that offer noncancellable (by them), guaranteed renewable (by you) contracts.

This, says Herz, is the most important consideration. You only want a policy in which the terms and cost can't be changed in the years ahead.

To find an agent, try the search tool at the website of the National Association of Health Underwriters.

Q. How much is it likely to cost?
A. Suppose you're a nonsmoking 50-year-old male in a white-collar, office-based job. A policy with a $3,600 monthly benefit that will start paying out after a 90-day waiting period will have a premium of about $3,400 a year, says Portland, Maine, insurance broker Matthew Tassey, past chair of the LIFE Foundation, a nonprofit that helps consumers make insurance decisions.

A 50-year-old nonsmoking female in the same sort of occupation would pay $4,125 for the same policy. Both policies would be for people making up to $100,000.

Why are women charged more? They're about 30-35 percent more likely to become disabled, says Tassey.

Q. Ouch. That's too much!
A. Technically, that's not a question. No matter. There are things you can do to lessen the sting. For instance, you can increase the waiting period from 90 days to 180 days (think of it as increasing the deductible on your homeowners' policy; you absorb more of the risk so the price drops).

Or, two or more people can get together and buy simultaneously to receive a lower rate. Herz explains that they don't need to be the same age or choose the same benefits; they are simply buying at the same time. Two people together might get 10 percent, five people 15 percent.

And, for women, there's a benefit to buying together with men. They can qualify for unisex rates, says Herz, a discount of 30-45 percent because of the men's lower risk factor.

Another thing to consider is a smaller or shorter term policy than you originally wanted. "Look at it like buying a house," Herz suggests. "If you want to buy a $1 million house but you can't afford it, you don't not buy a house. You buy a house that costs less."

Q. Is the process simple?
A. Ummm, no. Maurer tells people that disability insurance is probably the most invasive type there is. Underwriters look at your health, job, occupation and your finances. They often want to see tax returns. I've been through it myself and I can tell you, he's right. But that doesn't mean you shouldn't do it.

Q. When can I drop coverage?
A. There's a tipping point. Once you're retired and are no longer counting on earned income to live on and supplement your nest egg, you're done with disability insurance.

At that point, though, the need for long-term care insurance — which protects you from spending that nest egg too fast — takes over. There is, experts note, some overlap. You'll want to look into a long-term care policy by the time you're 55 or 60. After that, buying it becomes prohibitively expensive. But that's another column for another day.