Disability Insurance Protects Your Most Valuable Asset: Your Income
Achieving your financial goals can rely on a number of factors. One of the most important may be your current and future income. Many people take their income for granted by assuming that it will continue as long as they need it.
But imagine what would happen if your paycheck didn’t show up one week. What if you were without your income stream for several weeks, months, or even years? Your goals and aspirations for the future may have to be put on hold or changed dramatically to address your unexpected circumstances.
Many strategies and investments will play a role in a goals-based financial plan. Income protection is the foundation and should be a priority.
Your income: the most important asset in your portfolio
In a 2014 survey conducted by the Council for Disability Awareness (CDA), 67 percent of respondents said that their income is one of their highest priorities (right up there with health and home). However, only 28 percent said they believe it’s crucial to have insurance to protect it. So if your income is the source of your financial well-being, why wouldn’t you protect it, just like you do your home, your car, and your life?
Two of the most common objections that people express: “Nothing will happen to me that will keep me from working” and “It (insurance) costs too much.” But the numbers say otherwise.
Disabilities are more common than you might think
Here are some statistics from the Social Security Administration that seem to conflict with common perceptions about the inability to work:
- Just over 1 in 4 of today's 20 year olds will become disabled before they retire.
- 8.8 million disabled wage earners — more than 5 percent of U.S. workers — were receiving Social Security Disability Insurance (SSDI) program benefits at the end of 2012.
- In December 2012, there were more than 2.5 million disabled workers in their 20s, 30s, and 40s receiving SSDI benefits.
In addition, the U.S. Census Bureau reports that more than 37 million Americans are classified as disabled, which is about 12 percent of the total population. More than 50 percent of disabled Americans are in their working years, between ages 18 and 64.
Disability does not play favorites
Are you at risk of a disability if you’re working in a comfortable chair behind a desk in a temperature-controlled office? From the perspective of most insurance companies, you are. Most policies define disability as: “The inability to perform the substantial and material duties of your occupation.” This brings on-the-job accidents and injuries to mind, but in fact, accidents are not the primary cause of disabilities. As a 2014 CDA study indicates, approximately 90 percent of disabilities are caused by illnesses rather than accidents.
So the question you should ask yourself is not “what if I become disabled?’’ You should ask “what if I become too sick or hurt to continue working?” Musculoskeletal disorders are the number one disablers in this country (in bold in the chart below). Examples include arthritis, back pain, and spine and joint disorders. The other major causes are cancer, diabetes, heart disease, and nervous system-related disorders.
Disability Claims by Diagnosis
Percent of New and Existing Long-Term Disability Claims
|Claim Diagnosis Category||New*||Existing*|
|Cancer and Neoplasms||15.1||9.1|
|Injuries and Poisoning||10.3||7.7|
|Infections and Parasitic Diseases||1.9||2.9|
|Symptoms, Signs, and Ill-Defined||2.8||2.7|
|Endocrine, Nutritional, and Metabolic Diseases and Immunity Disorders||1.3||2.2|
|Complications of Pregnancy and Childbirth||5.9||1.7|
|Skin and Subcutaneous Tissue||0.8||0.8|
|Blood and Blood-Forming Organs||0.2||0.3|
*New claims are those approved in the survey year; existing claims are ongoing but were approved in prior years.
Source: 2014 Council for Disability Awareness Long-Term Disability Claims Review
Whether you’re writing an email to a client or nailing shingles to a roof, these are very real illnesses, and we all know someone who has dealt with the challenges that come with a diagnosis. These illnesses can hinder your ability to work, and diminish your income, just as surely as a workplace accident or injury.
Of course we all hope and pray that it “never happens to us,” but ignoring the possibility does not address the risk. There are some things that are beyond your control, but you can protect your most important asset in a number of affordable ways.
Disability insurance: understanding what you may already have
Many employers sponsor a group long-term disability (LTD) insurance plan for employees. Sometimes the coverage is paid for by the employer, but it is often voluntary. This is a very affordable way to purchase quality disability insurance (typically between $250 to $500 per year).
If you already have a group LTD policy in place, make sure you know what you have. Most group LTD policies cover a percentage of your income and often come with a cap on the monthly benefit. There may also be variations in the definition of disability, as well as what portion of your income is covered (i.e., base pay but not bonuses). Obtain a copy of your group coverage and review it with your financial advisor so you know how much of your paycheck is protected.
If you do not have a group LTD policy or the one you have does not provide sufficient coverage, many good individual disability insurance policies are available from some of the best insurance companies in the industry. These policies, while more expensive than group LTD, typically provide more comprehensive coverage. Typically, these policies will cost between 1 and 3 percent of the insured’s salary. In addition, there are many options and custom plans that allow you to secure the right coverage for your individual needs. An insurance professional and your financial and tax advisors should all be part of the selection process.