Disability Insurance: Best Deals

(MoneyWatch) 

How can I get the best deals on disability insurance?

by Jane Bryant Quinn

An excellent buy for people on a limited budget is an annually renewable disability income (ARDI) policy. It works very much like yearly term life insurance. The premium starts low and increases a little every year. By contrast, a traditional disability policy charges more when you first buy but fixes that price for the policy's entire term.

ARDI makes sense for younger professionals and businesspeople who in the past may have felt that they couldn't afford disability policies. Depending on your age, you might cut 25 to 50 percent off your initial cost.

Your gamble is that, as the price of the policy rises, so will your income. That's a pretty good bet. ARDI's modest extra cost each year shouldn't be a strain. In early middle age, however, ARDI starts getting pretty expensive.

You'll want to drop the policy or convert to fixed-price coverage. If you're insurable, don't convert without checking out the competition. Another insurer may offer you a better price.

A few insurers offer step rates — lower rates in the first few years, when your earnings are low, then a jump to a single, higher rate in later years. Step-rate policies cost more than ARDI at the start but less as the policy ages.

Excerpted from Making the Most of Your Money Now by Jane Bryant Quinn

Copyright 1991, 1997, 2009, by Berrybrook Publishing, Inc. Reprinted by permission of Simon & Schuster, Inc

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