Benefit Period (Disability)

Morbidity, the expected incidence and severity of illness and injury that causes disability — Disability income insurance protects against loss of earning capacity from sickness or injury, so its pricing is driven by morbidity, the frequency and severity of disability-causing illness and injury in a given risk class. Life insurance, by contrast, is priced primarily on mortality. Disability pricing also reflects expenses, investment income, benefit period, and the probationary and elimination periods, but morbidity is the fundamental risk measure. Understanding this difference explains why disability rates vary so strongly with occupation and elimination period.

National insurance concept

A longer benefit period produces a higher premium because the insurer may pay benefits for a longer time — The benefit period is the maximum length of time benefits are payable during a disability, commonly 1, 2, 5, or 10 years, or to age 65. A longer benefit period exposes the insurer to more potential claim payments, so the premium is higher. Choosing the benefit period is a major pricing decision along with the elimination period, the monthly benefit amount, and the definition of disability. Shorter benefit periods lower the premium because the insurer's maximum exposure is capped sooner, and the savings can be meaningful.

National insurance concept