Of all the kinds of insurance people think about, disability insurance is one of the most overlooked: Seven out of 10 workers don’t have any long-term disability coverageaccording to the Social Security Administration.

Eschewing that income protection, however, can be risky: The Pew Charitable Trusts reports that nearly half of the households that experience a financial shock—perhaps one caused by an illness that requires a trip to the hospital—suffer serious financial setbacks the next year. That was true even among even those households that were considered economically sound.

There are other sobering statistics as well. The Social Security Administration estimates that more than one quarter of today’s 20-year-olds will become disabled before reaching age 67. The National Information Institute predicts that 43 percent of all people age 40 will be sidelined for 90 days or more by age 65. For all these people, long-term disability insurance would seem to make good financial sense. But finding the coverage that’s best for you can be confusing.

Lower Your Costs

Before you buy disability insurance, you should know that while short-term disability protection replaces a portion of your income for anywhere from a month to a year of disability, it is generally offered only through an employer. Long-term coverage, however, pays benefits of up to 60 percent of your pre-tax salary anywhere from five years up to, ideally, when you qualify for Social Security. If you're contemplating buying disability insurance, there are ways to lower your costs:

  • Buy sooner rather than later. “Disability insurance is one of the most expensive policies, because as you age, the risk is greater that you will claim on it,” says Jennifer Fitzgerald, co-founder of Policy Genius, a digital insurance broker that offers multiple insurance products. The sooner you get it, she says, the cheaper it will be. Generally speaking, expect to pay between 1 and 3 percent of your salary.
  • Avoid exclusions. The longer you wait, the more you risk experiencing a health problem which, while it may not preclude your ability to get protection, will be excluded from your coverage. For example, if you’ve had carpal tunnel syndrome in the past and are worried that it may hamper your ability to work in the future, you could still be eligible for long-term disability benefits—but only if the cause of your disability is not carpal tunnel syndrome.  
  • Stretch the waiting period. You can choose to have coverage kick in within 30 days, 60 days, or 90 days. The longer the waiting period, the lower the cost. Apply the savings in your monthly premiums to building up your emergency fund.
  • Halt premium hikes with a non-cancelable contract. Non-cancelable means the policy cannot be canceled by the insurance company, except for non-payment of premiums. This gives you the right to renew the policy every year without an increase in the premium or a reduction in benefits.
  • Opt for increased coverage. Disability insurance covers a percentage of your income—but what if your income increases since you first signed up? No problem, says Fitzgerald. “All policies have the ability to increase the amount of coverage as your income increases,” without a new health examination. Depending on the policy, this may be called “future increase option” or “future purchase option.”
  • Find out if your employer offers long-term coverage. Unlike short-term disability, enrollment in your employer’s long-term disability plan is not automatic, so you may have skipped over this option. “Absolutely take advantage of it,” urges Fitzgerald. “It’s usually at a low rate and you don’t have to qualify medically. If you want a waterproof disability plan, supplement any coverage from work with a smaller individual policy with a future increase option,” she adds. That way, if you change jobs and your new employer's group policy isn’t convertible to individual coverage, you’ll already have protection and can increase the amount to match your new income.
  • Take the “own occupation” rider. One of the reasons Social Security Disability Insurance covers barely 31 percent of applicants is that the disability has to be total and permanent. With an “own occupation” rider on a private policy, however, you can receive full benefits if you’re unable to work in your original occupation even if you can still make money in a different occupation. 

As you research long-term disability insurance, match the policies with your occupation, age, and profile to get the most favorable offerings. “The good thing is that there are a lot of disability insurance companies,” says Fitzgerald. “Independent brokers can navigate across these options and match them to your profile.”