By Greg Hammond
A potential injury or illness could prevent you from doing your job, causing you to lose your paycheck. Even a short-term disability could be financially devastating. This doesn’t need to be the case if you plan for this potential risk by purchasing disability insurance.
Many individuals overlook the need for disability insurance as part of their financial picture. A poll of 1,200 private sector U.S. workers by the non-profit Consumer Federation of America found that two-thirds of them did not have disability insurance coverage. Individuals often don’t see a reason to purchase additional insurance for something they don’t think they will need. This is understandable, but many of us don’t realize the many ways we could become disabled.
When mentioning the term “disabled,” many of us think of someone in an accident who has lost the use of their legs, eyesight or other bodily functions. Few of us think about becoming disabled due to illness or various other health conditions. The non-profit Council of Disability Awareness notes that 90% of disability claims in the U.S. are unrelated to workplace injury. Rather, most claims are filed for acute or chronic illnesses or health conditions. Musculoskeletal disorders, such as arthritis, spine and joint disorders, fibromyositis and back pain, represent more disability claims than any other condition.
Some people think that because they are covered by workers compensation and Social Security that they won’t need to purchase disability insurance. Only 5% of disabling illnesses or injuries are workplace related and covered by workers compensation. Social Security disability benefits typically only provide about $1,100 per month, which doesn’t go very far. Additionally, it might take a year or more for you to receive your first Social Security disability check. In 2009, the Social Security Administration denied 65% of initial SSDI claim applications.
For these reasons, disability income insurance can be very useful. Some policies allow payments to start just a week after an employee stops working, and many provide coverage in the neighborhood of 60% of an employee’s salary.
You may believe you will never have a disability, but a study by Milliman, Inc. on behalf of the LIFE Foundation shows you have a 3 out of 10 chance of suffering a disabling illness or injury during your career that could keep you out of work for three months or more. The Society of Actuaries reports that once someone is disabled for 90 days, the average length of disability is two years. Could you support yourself and your family for two years without an income?
A loss of income can cause financial stress. Do you know someone who has had to quit their job, retire early or walk away from their profession due to a disability? Even if you don’t, we often see a news report or read a story about a family suffering from economic hardship caused by a disability – a hard-working man or woman loses a home to foreclosure; a couple separates or divorces under economically trying circumstances; a single parent with children has to accept charity from a food bank or becomes homeless. In too many of these stories, the underlying cause is a sudden disability.
When you die, your income stops and so do your expenses. If you become disabled and can’t work, your income stops … but your expenses keep piling up. In fact, with the cost of medical treatment, your expenses may increase tremendously.
If you are employed, it’s time to start thinking about disability insurance. We’d all like to believe that we’ll never be disabled, but the reality is … it could happen to you. If it does, how will you manage? Get prepared.
For more information on disability insurance visit www.protectyourpaycheck.org, an educational website sponsored by the LIFE Foundation, a non-profit organization dedicated to helping consumers make smart decisions to safeguard their families’ financial futures.