Disability Insurance

Most of us don’t think about disability insurance (DI) when we first enter the workforce. We are young and full of life. We don’t think that anything will happen to us. However, we need to stop living in a fantasy world and realize that

“A disability can happen to anyone…at any time.”

According to the Insurance Information Institute (November 2005) – “At age 40, the average worker faces only a 14% chance of dying before age 65 but a 21 percent chance of being disabled for 90 days or more.”

Even more alarming is this statistic from the Social Security Administration (SSA) Disability Benefits Publication; National Vital Statistics Report, 1999 – “A 20-year old worker has a 30% chance of becoming disabled before retirement age, and only a 17% chance of dying before age 65.”

In July 2006, the U.S. Census Bureau, stated, “51.2 million Americans have some level of disability. They represent 18% of the population.”

In 2007, the SSA stated, “The number of disabled workers in America has risen by 35% since 2000.” That same year the U.S. Census Bureau, American Community Survey found, “12.8% of people ages 21-64 surveyed have a disabling illness.”

Donald Cady in the 2005 Field Guide to Estate Planning, Business Planning & Employee Benefits states that means you have a 1 in 21 chance that you’ll have a disabling accident.

The National Safety Council’s ®, Injury Facts® 2008 edition found that in the U.S., a disabling injury occurs every 1 second and a fatal injury occurs every 4 minutes. In the last 10 minutes, 498 Americans became disabled. They found that in the home, a fatal injury occurs every 12 minutes and a disabling injury every 3 seconds. Further, there is a death caused by a motor vehicle crash every 12 minutes; there is a disabling injury every 13 seconds.

The statistics don’t stop there. The SSA’s January 31, 2007, Fact sheet states, “Almost 3 in 10 workers entering the workforce today will become disabled before retirement.”

In 2007, the U.S. Census Bureau, American Community Survey, showed that the employment rate of working-age people with disabilities in the U.S. was 36.9%. In the 2006, JHA Disability Fact Book stated, “43% of all people age 40 will have a long-term disability event prior to age

The American Journal of Medicine. June 4, 2009, state that a Harvard University report revealed 62% of all personal bankruptcies filed in the U.S. in 2007 were due to an inability to pay for medical expenses.

This statistics should drive it home to you that you need to obtain some type of disability insurance. Unfortunately, most of us have very little understanding of the likelihood of us experiencing a disability. A recent Council for Disability Awareness, 2007 Disability Awareness Survey (CDA) of workers found:

  • 90% underestimate their own chances of becoming disabled.
  • 85% express little or no concern that they might suffer a disability lasting three months or longer.
  • 56% do not realize that the chances of becoming disabled have risen over the past five years.

When we think about a disability, we immediately figure the disability will be work related. However, the National Safety Council®, Injury Facts® 2008 Ed. found that over 85% of disabling accidents are not work related and therefore are not covered by workers’ compensation.

Disabilities are not typically caused by freak accidents. “The majority of long-term absences are actually due to illnesses, such as cancer and heart disease.”– Life and Health Insurance Foundation for Education November, 2005

In 2007, the Centers for Disease Control and the Prevention stated that strokes are a leading cause of serious long-term disability.

Disability Duration

An average disability may last longer than you think. Look at this statistics:

“The average duration of a long-term disability is 30 months.” – JHA Disability Fact Book, 2006

“Nearly 1 in 5 Americans will become disabled for 1 year or more before the age of 65.” – Life and Health Insurance Foundation for Education. November 2005

“Three out of 10 workers between the ages of 25 – 65 will experience an accident or illness that keeps them out of work for 3 months or longer.” – Social Security Administration, Fact Sheet, January 31, 2007

“Nearly 1 in 3 Americans ages 35-65 will become disabled for more than 90 days.”
– 2005 Field Guide to Estate Planning, Business Planning &Employee Benefits, by Donald Cady

If you don’t have some type of DI, how are you going to pay your bills? If you have established an emergency fund, it might become drained before you are fully recovered. Get yourself disability insurance.

Don’t fool yourself into thinking that unemployment or Social Security cover you if you become disabled. The SSA approved less than half of the 39% of the 2.1 million workers who applied for Social Security Disability Insurance (SSDI) benefits in 2005 were approved. – Social Security Administration, Office of Disability and Income Security Programs

In 2008, the average monthly SSDI benefit is $1,004. – Social Security Administration, Fact Sheet 2008

In 2007, the US Census Bureau, American Community Survey, found that the percentage of working-age people with disabilities receiving SSDI payments in the US was 17.1%.

“Over 6.8 million workers are receiving SSDI benefits, almost half are under age 50. This represents only 13% of the over 51 million Americans classified as disabled.” – Social Security Administration, Fact Sheet 2007

When you buy DI, try to buy disability coverage that pays if you cannot perform the job that you were educated or trained to do. This is type of DI is called Occupational, or “own-occ,” disability. It can be expensive, so you may only be able to get a couple of years’ worth of coverage. However, those two years might just give you enough time to get you into another line of work, go back to school, or get training into another field so you can get back to work.

Own-occ coverage will provide income for you for a specified period. Then, you will have to get into another line of work. This is not permanent DI. If you are permanently disabled and cannot work at all, and that’s just the way it is. However, if you’re occupationally disabled, it just means you can’t do that specific job anymore.

Don’t purchase from short-term disability that covers less than five years. If you’re following these lessons, you already have a short-term disability plan. That’s called the emergency fund!

If you have eight to twelve months’ worth of expenses in the bank just for emergencies, you’ll be able to pay your bills while you recover from a short-term problem.

Get long-term disability. It covers anything over five years. Pricing of long-term disability is all over the place. If you go out and try to buy it as an individual, you may might find it very expensive. It’s not really based on your age or health at all. It is based more on what you do and what kind of job you have. Construction worker, for example, will probably find that it’s going to be more expensive than if you sat at a desk all day. Why? Because it’s a lot easier to get hurt on a construction site than at your desk! The chances of a disabling accident occurring at a construction site are great. Therefore, it costs more.

The best place to purchase long-term disability insurance is through your workplace. Some companies just pay for it for all their employees as a benefit. However, even if the company doesn’t pay the bill, you could still buy it yourself through your company and get a great group rate. If that option is offered, take it. Your group rate at work will be the cheapest option you’ll find.

If they don’t offer it at work or if you’re self-employed, you may still be eligible for a group rate through a trade organization. Contact a trust worthy insurance agent and see what options you have, because you need this!

Buy disability coverage in the 60–65 percent range. This means if you become disabled, the insurance company will pay that percentage of your regular income. The 65 percent is actually about how much of your salary you bring home after taxes, Social Security, and other payroll deduction. Let’s say you make $48,000, a 65-percent plan would provide a $31,200 income for your family.

However, don’t think that if you’re making a million dollars a year, you’ll keep receiving $650,000 forever. No insurance company that will pay you that forever! The purpose of disability insurance is to pay your bills and keep food on the table. It is not there to make you rich!

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