How Are Disability Premiums Determined?

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September 30th, 2009

manual_wheelchair_bsmk_supply_comfortable_and_safety_wheelchair Disability insurance is a valuable financial tool that you and your employer can use to cover you and secure your family in the event of your becoming disabled. When you pay for disability insurance, your monthly premiums can vary depending on a few things. Companies that issue the insurance contracts use a complex system to evaluate an individual’s risk, and then assign them a certain monthly rate they must pay to ensure that they are covered. So while you know how important it is to have such insurance in place, you may have wondered how the monthly rates are calculated. Here are a few of the things insurance companies use to determine your cost for disability insurance.

Age

The first and most obvious factor companies use to determine a person’s disability premiums is their age. The older you are, the more statistically likely you are to suffer an injury or to need to go to the emergency room. This is a basic but important factor, and even young people can see higher rates, for example if they are unusually young for the job they are performing.

Gender

Another biological factor that goes into determining someone’s disability insurance premium rates is their gender. Men and women are statistically prone to slightly different types and severity of accidents and the insurance companies take this into account.

Job

Some jobs are riskier than others. If you have a dangerous job, like a deep-sea fisherman or a police officer, your premium rates will be higher than for less risky jobs. Other examples of dangerous jobs that would probably require higher disability insurance premiums include roofers, steel workers, truck drivers and trash and recyclable materials collectors. Basically, when you add height, heat, or moving parts to a job, the risk of injury and disability goes up, and so does the premium cost.

Salary Range

Because disability insurance provides for a certain amount of an employee’s salary to be paid out to them in the event the are disabled, both the payout and the premiums are influenced by how much money you make. Workers making more money will likely need to contribute more in premiums every month to make sure that their lifestyles can be maintained even if they become disabled. That’s why it’s better to think about it in terms of percentages of salaries. If you contribute 2% to 5% of your salary, then that amount just goes up when you start to make more, and goes down when you take a cut.