5 things to know about disability insurance

(Money magazine) -- 1. Employers have gotten stingier

In 2009 only 48% of U.S. companies paid for long-term disability insurance for their workers, down from 59% in 2002, according to industry association LIMRA.

Even if yours is among them, the coverage may be inadequate if you're a good earner. Most group policies pay no more than 60% of base salary if illness or injury prevents you from working, typically with a cap of $5,000 to $15,000 a month.

Even if your base is, say, $200,000, with a $5,000 monthly cap you'd get only $60,000 -- taxable. And any Social Security disability payments are typically deducted from the amount group policies give you.

Because you have a nearly 1-in-5 chance of becoming disabled for at least a year during your working life, buying more coverage may make sense.

2. Individual policies are less expensive than you may think

Insurers generally haven't raised premiums for the past few years, mainly owing to greater competition and stricter underwriting (see point No. 3). That's good news if you lack coverage or your employer doesn't offer extra that you can buy at a discount (many do).

Most professionals will pay 1% to 3% of net comp per year for a policy that covers 80% of that comp -- typically the max allowed.

"I like to get my clients to 70%," says Old Greenwich, Conn., financial planner Loretta Nolan.

3. If your pay varies, your coverage could suffer

A decade ago, insurers got burned by higher claims than they had expected. So "underwriting has really toughened up," says Craig Gussin, an independent insurance agent in San Diego.

Companies now scrutinize several years' worth of tax returns before deciding how much coverage they'll offer. Say you get paid mostly in bonus or commission and had a couple of awful years during the recession. You may qualify for an individual policy that pays only a small percentage of what you made in 2010.

4. The devil is in the details

Individual policies typically contain provisions that can make your coverage a whole lot less valuable. For example, many will pay only if you are unable to do any occupation, not just the one you trained for. And some pay only if you're fully, not partially, disabled.

Getting those restrictions removed may cost you up to 20% extra for "own occupation" coverage and 10% to 20% for partial disability coverage but it's worth it, says Gary Schatsky, a fee-only financial planner in New York City.

5. There are smart ways to cut costs

For example, delaying when payouts kick in reduces your premium -- a trade-off that can make sense. If you have a six-month emergency fund stashed away, increase the "elimination period" from the standard 90 days to 180 days, suggests actuary Dan Skwire: You'll save about 10%.

Shopping for the best deal on your own isn't easy. So visit nahu.org, which will refer you to a licensed agent who can pull quotes from multiple companies.