May 11, 2017

What Does Disability Insurance Awareness Month Mean?

By Heather Kelly

May is Disability Insurance Awareness Month. Each year, The Council for Disability Awareness (CDA) joins with other stakeholders in the insurance industry to raise awareness about the importance of income protection.

According to their website, “The Council for Disability Awareness (CDA) is a nonprofit organization dedicated to educating the American public about the risk and consequences of experiencing an income-interrupting illness or injury.”

The CDA conducts research and provides educational opportunities to wage earners, employers, financial advisers, and insurance consultants who are concerned about the catastrophic impact a disability can have on wage earners and their families.

As an insurance professional, I am a strong advocate for doing whatever we can to make people more aware of the critical importance of disability insurance, or as I prefer to call it, income protection insurance.

Think about it a moment. We insure our home. We insure our car. But when we really look at what our most valuable asset is – it’s not our home, it’s not our car, and in some ways it’s not even our retirement plans – it’s our ability to get up in the morning every single day and earn an income. It’s how we contribute economically to the ongoing well-being of our families.

Our ability to earn an income is what allows our sons and daughters to go to the schools they attend and pays for the clothes they wear. Our income covers the mortgage payments, put groceries in the refrigerator, pays for the utilities, and allows for the Internet to come into our homes.

We are our most valuable asset and our ability to earn an income is crucial to our daily existence. So doesn’t it make sense to have insurance that covers any disruption in our ability to work? Of course it does.

Americans Woefully Unprotected

Unfortunately, too many American workers leave their incomes unprotected. More than half of the American workforce has no private disability insurance. This leaves them vulnerable to the devastating consequences of an illness or injury that prevents them from earning an income.

Without insurance, even those who experience a short-term illness or injury can quickly run out of money without a plan to replace their lost income.

Consider some of these statistics I culled from the CDA website:

  • Only 33 percent of private sector workers have access to long-term disability (LTD) benefits through their employer, and only 40 percent have access to short-term disability (STD) benefits.
  • Employees of small companies are much less likely to be covered. At companies with fewer than 100 workers, 29 percent have access to STD, 23 percent have access to LTD.
  • Twenty-six million Americans are considered part-time workers. Only 5 percent of part-time workers have access to employer-sponsored long-term disability.
  • One-in-four of today’s 20 year olds will become disabled before reaching age 67.2.

So as we can see, American workers are woefully under-covered when it comes to income protection insurance. Of those who do have insurance, most obtained it through their employer, which may have gaps and still leave you vulnerable. And as noted above, only a very small percentage of people have income insurance if they work for a smaller company, or if they are part-time employees. and for those few who do not have a plan in place.

Social Security Disability Insurance (SSDI)

If a worker has no short-term or long-term disability insurance and they become too sick or injured to work, then more than likely they will apply for Social Security Disability Insurance (SSDI).

However, most people are unaware of the specifics of this federal government program and may not realize how little income is provided, assuming they get approved for benefits, which is no sure thing.

Over two million people a year apply for SSDI benefits, but only 700,000 are approved. And even if you are approved, the average benefit is only $1,171 a month, which is just above the 2017 federal poverty line for an individual.

Plus, SSDI is difficult to qualify for. The application process can take months or even years, and applications are generally only approved for disabilities expected to last a year or more.

Pitfalls and Gaps

Even if you are fortunate enough to have income protection insurance, it would be wise to investigate exactly what your coverage entails. Very often there are gaps or pitfalls in the coverage. For example, your coverage might provide a percentage of your monthly income but it may not include income derived from bonuses, commissions, or other forms of incentive income.

Plus, you should be aware of the timeframes of your coverage. Are you covered for one year, five years, ten years, or more? And you should know exactly what percentage of your income is covered in the event of a disability.

Most of us don’t like to think about the possibility of catastrophic events happening to us. I know that I’m in that category; I like to think of myself as being impervious to such things; I like to believe I have a big red “S” on my chest.

But the consequences are far too grave if some illness or injury should disrupt my ability to earn an income for me not to plan for that possibility. And I would urge all of you to consider working with a financial adviser to construct some form of income protection strategies as well.

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