Two of life’s many uncertainties include passing away prematurely and becoming disabled. Both can have a profound impact on your family and loved ones’ financial future, but both premature death and a disability can be covered by insurance. You’ll receive broader coverage with two separate policies, but you may be able to add a disability rider to your life insurance policy.
Do I need both life and disability insurance?
Having both life and disability insurance can provide you and your family with valuable income protection. Having both policies can cover you for two unexpected events – dying prematurely and becoming temporarily or permanently disabled to the point that you can’t work in your current job.
If you can afford it or have dependents who rely on your income, buying both types of protection can ensure you have peace of mind and that your family can stay afloat if something happens to you. Statistically, you’ll have a greater chance of becoming disabled than dying prematurely, so disability insurance is typically more expensive than a term life insurance policy.
Can I buy life and disability insurance together?
Life and disability insurance are two separate policies that require two separate applications. The only exception is if you add a disability rider to your life insurance policy — though doing so often results in narrower coverage than buying a separate disability policy.
You’ll be able to use one medical exam for both your life and disability applications as long as you’re applying for both around the same time.
Many life insurance companies, particularly the largest ones, offer both life and disability insurance. For example, MassMutual offers both life and disability insurance, so you could apply to both policies through one company.
And you’ll likely receive two separate bills, even if it’s with the same company. If you sign up for automatic payments, your premiums will be deducted in two separate installments.
How much does life and disability insurance cost?
If you’re still of working age and in good health, you could reasonably expect a term life insurance policy to cost anywhere between $250 to $900 per year, depending on your age. A disability policy typically costs between 1% and 3% of your income. For example, if you make $60,000 per year, your total life and disability cost could be between $1,000 and $1,500 per year.
The cost of life insurance is mainly dependent on your age and your health condition, while disability insurance adds your occupation to age and health in determining your rates.
There are many types of life and disability insurance, giving you flexibility in which types of policy you buy. There are also options that combine both life and disability coverage into one policy. The best option for you will depend on your budget, your overall health and occupation, and how much coverage you’re looking for.
Most comprehensive coverage. Purchasing whole life insurance combined with short and long term disability is your most comprehensive option. Whole life insurance provides you with lifelong coverage and a cash value component that you can use as a retirement supplement or to pay off debt. Buying both short term and long term disability insurance gives you the broadest coverage for protecting your income.
Cheapest option. Term life insurance combined with a disability insurance rider is your most affordable option. Term life insurance is the cheapest type of life insurance, as it covers you only for a specified period of time and doesn’t build any cash value. Some life insurance companies allow you to add a disability rider to your policy, which is much more affordable than buying your own disability insurance. However, the coverage isn’t quite as broad and the policy may be much more strict with returning to work after a disability.
Middle of the road. If you can afford a bit more insurance, consider a return of premium term life insurance policy combined with long term disability insurance. A return of premium policy is more expensive than standard term life insurance, but you’ll receive all of your money back if you outlive the term of your policy. Long term disability generally costs about the same as short term, but the benefit period lasts much longer, offering coverage for disabilities that may leave you out of work for an extended period of time.
How can I save when buying life and disability policies?
Unfortunately, there probably won’t be a bundling discount if you buy a life and a disability policy from the same company. But there are still some ways to save money if you’re taking out both.
Prepare for the medical exam. Both your life and your disability application will require a medical exam, but you only have to take one and can use the results for both policies.
Consider adding a disability rider to your life insurance. Many insurance companies offer a disability rider to your life insurance policy. A rider can give you many of the same benefits of a standalone disability policy, but may be more limited in its scope.
Buy term life insurance. Term policies are much cheaper than permanent policies, though they won’t build up cash value and are only good during the specified term.
Increase your disability elimination period. Your elimination period is how long you have to wait between when you submit the disability claim and when you start collecting the payment. The standard period is 30 days, but you can save money by waiting longer, if your savings can handle it.
Decrease your disability benefit period. While you might want to err on the safe side since you can’t know how long you would be disabled for, opting for a shorter period of time when you actually collect the disability benefit money will help lower your premiums.
Can I get life insurance if I receive disability payments?
Yes, you can buy a life insurance policy if you’re currently receiving disability payments. However, which type of disability insurance you have will determine if life insurance will affect your disability payouts.
Life insurance and Social Security Disability Insurance
If you’re applying for Social Security Disability Insurance (SSDI) and you have a permanent life insurance policy, the Social Security Administration will likely count any cash value from your policy as a source of income and either reject your application or lower your benefit amount.
SSDI currently has set an income threshold of $1,180 a month for eligibility. If your cash value is over that amount, or at $12,000, then it may disqualify you from receiving SSDI.
Life insurance and private disability insurance
Typically, having cash value life insurance won’t affect your ability to collect disability payments from a private disability insurance company, since it will only set your benefit amount based on a percentage of your pre-disability income. But if you’re applying for life insurance and you have a disability, you may run into problems with a pre-existing condition.
There are many insurers that are willing to issue new life insurance policies to people with pre-existing conditions, but many life insurance companies will reject your application while you’re disabled. Do some research on the best life insurers for pre-existing conditions and you should be able to find a company that’s a good fit for you.
Bottom line
Having both life and disability insurance can play a vital role in preparing for the unexpected. Life insurance may be cheaper to buy than disability, but your chances of becoming disabled at some point in your career are high enough that both types of insurance can be beneficial.
Common questions about life and disability coverage
It’s difficult for insurers to accurately predict disabilities and premature deaths on an individual basis, so they stick to simply offering their base rates. There are some companies, like State Farm, that offer a discount for bundling home and auto insurance with life insurance, but insurers won’t extend the discount to life with disability insurance.
Employer-based insurance can be a great benefit of your job, but it likely will only cover you while you’re employed with the company. If you get laid off or the company sells out, then you would be out of coverage, so it might be worth it to supplement your work-based insurance with private insurance.
Each company has slightly different options, but the typical disability rider will be set at a percentage of your death benefit. This means it could be much less than the 40% to 80% of your income that a standalone disability policy would pay. There could also be fairly strict back-to-work requirements to keep collecting the disability benefit.
Andrew Flueckiger is a licensed insurance agent and Certified Insurance Counselor with experience in insurance and finance. A graduate of Indiana University, Andrew contributes a wealth of knowledge and experience to Finder. When Andrew isn’t writing, reading or practicing insurance, he can be found spending time with his family and playing the guitar.
How likely would you be to recommend finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Advertiser Disclosure
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
