I often hear this from prospective clients when they look at quotes for disability insurance. Very often, these same people recently purchased a term life insurance policy and are astounded by the difference in the cost between the two policies. “I can get a $1,000,000 term policy for $37.00 a month. Why does the disability policy with a $6,000 monthly benefit cost ten times as much?”
My short answer is, the higher the chance the insurance company has of paying a claim, the higher the cost of the insurance policy. The chance of one becoming disabled during his/her working years is far greater than the chance of dying during the period of a term life insurance policy. Therefore, the cost of the premium has to reflect this difference.
Additionally, the potential payout of a disability policy is usually much higher than a life insurance policy. For example, in the above mentioned disability policy, if the 30 year old policy-holder were to become disabled for the length of the policy term (typically to age 65), the payout would be approximately $2.5 million (without cost-of-living increases).