May is National Disability Insurance Awareness Month. Myths and assumptions about the need, or lack thereof, for disability insurance make it critical that more awareness is developed to understand the potential risk of losing your income.
Your ability to earn income—your human capital—is a far bigger influence on financial security than any other asset you have. Income makes everything in your financial plan possible. Your home, car, education savings, retirement savings and all the other costs that make up your lifestyle and your expectations, are susceptible to a loss of income.
Consider this example of your earnings potential between now and age 65, assuming a 3% annual cost of living raise:
|Currently 30 years old||$3,163,797||$6,327,594||$9,491,391|
|40 years old||$1,927,652||$3,855,304||$5,782,956|
|50 years old||$1,007,844||$2,015,688||$3,023,532|
Your human capital is likely a far bigger asset than any capital you have in investment markets or home equity.
Assumptions and myths quickly get outweighed by facts when people take the time to consider their exposure to risk of disability.
Most people have at least one of four faulty assumptions:
- I’m covered by Workers Compensation, Social Security Disability or my employer.
- Even if I have a disabling injury or illness, it won’t last long.
- I’m invincible. The odds of a disability are too low to insure against.
- Disability insurance is too expensive.
With those thoughts in mind, consider these startling facts:
- According to the National Safety Council, Injury Facts report, in the home, a fatal injury occurs every 14 minutes and a disabling injury every four seconds. There is a death caused by a motor vehicle crash every 11 minutes; there is a disabling injury every 13 seconds.
- It’s not accidents that lead to injury that create the most situations of disability. Disabilities due to illness represent 90% of all instances according to a 2002 JHA U.S. Group Disability Rate and Risk Management Study. The top three causes of long-term disability — heart disease, cancer, and musculoskeletal disease — are usually not work-related, and therefore not eligible for workers’ comp.
- According to the U.S. Census Bureau, 50 million Americans are considered disabled. Every 30 seconds, someone files for bankruptcy due to the impact of a serious illness.
- Things that used to lead to death now disable. Medical advances have kept more people from dying but in many cases, do not fully heal, therefore, as incidence of death goes down, incidence of disability goes up.
- Approximately 60% of claims for Social Security Disability income are denied. The average monthly payment in cases that are approved is $1,004, barely above poverty line.
- The Bureau of Labor Statistics determined that only 29% of all employed people have long-term disability coverage through their employer. Many employers provide short-term disability coverage but group policies for long-term instances are not well utilized.
- Income from group long-term disability insurance is taxable. In reality, a standard 60%-of-income benefit, pays out much less than that after tax.
- Typical disability insurance premiums cost roughly 2-3% of income.
Three ways to acquire adequate coverage
- Through your employer group plan, purchasing more on your own than is offered if needed.
- Through a professional organization. If your company does over long-term disability coverage, an association or professional group you belong to may.
- Buy it on your own. Individual disability insurance coverage is the most flexible and reliable if you qualify. You can supplement employer-based coverage with individual coverage. With individual coverage, you don’t have to worry about a job change eliminating your disability coverage. You can evaluate the best policy across multiple carriers to obtain a competitive rate.
For a worksheet to determine how much disability insurance is enough, or to inquire about a thorough analysis of your financial situation, please send an email to email@example.com