The Insurance Buying Guide: Selecting a Benefit Period
Once you've figured out what kind of elimination period you can tolerate, you need to choose the length of time that benefits will be paid. The most common benefit periods are one, two, or five years and to age 65. In some cases, a lifetime accident and/or sickness option may be included in the policy, which extends the benefit period for your lifetime.
Like the elimination period, the benefit period is a reflection of the premium you pay. The longer the benefit period, the higher the cost of the policy. Short benefit periods result in lower premiums, especially when they are coupled with long elimination periods.
The following chart illustrates this concept.
The Premium and the Benefit Period
Male, Age 45, $1,000 Monthly Benefit Payable to Age 65
Benefit Period Annual Premium
1 Year $255
2 Years $330
5 Years $510
To Age 65 $690
Lifetime $830
If you determine that a 30-day elimination period is adequate, then it would be reasonable to consider a two- or five-year benefit period. On the other hand, when evaluating the risk of a permanent disability the potential loss of income during a to-age-65 benefit period is controlling.
Although insurance experts normally discuss disability income benefits in terms of monthly amounts, they look at the bigger picture when determining the benefit period. The potential loss of income due to a permanent and total disability can literally be in the millions of dollars.
For example, a 40-year-old earning $50,000 per year who becomes totally disabled stands to lose more than $1.2 million before age 65 if the disability becomes permanent.
And, as we've seen, the older you are at the onset of a disability, the more likely it is that you will not recover fully. This possibility suggests that you should get the longest benefit period possible. However, a longer benefit period leads to a larger premium.
Following an analysis of all of the facts and your needs, the deciding factor may well be the cost of the policy. In this case, ask yourself: Should you use your resources to pay for a shorter elimination period or use the premiums to cover a longer benefit period?
