When asked to list their most valuable assets, many people would place a home, car, or 401K at the top of the list. And they’d be wrong. While those are important - even vital - pieces of living life, a person’s most valuable asset is actually the ability to make a living, working to pay their mortgage, fuel their vehicle, and fund that retirement account. If unexpected illness or injury derails those efforts, life quickly begins to unravel on all fronts. Research indicates that millions of Americans lack adequate savings to handle a medical emergency, even as healthcare costs continue to skyrocket. As a result of rising expenses, employers are often eliminating or reducing benefit offerings, creating a perfect storm of financial distress when employees cannot work due to illness or injury. Fortunately, private disability insurance is available to help meet financial needs when adversity comes knocking.
WHAT IS LONG-TERM DISABILITY INSURANCE AND WHO NEEDS IT?
Long-term disability insurance pays a specific portion of a person’s income when he or she is unable to work for an extended period due to illness or injury.1 Unlike Worker’s Compensation, which only provides benefits if an employee is hurt on the job, disability insurance provides coverage for when a person becomes ill or disabled for any reason.2 While the odds of missing months of work due to an illness or injury may seem small, the Social Security Administration estimates that more than 25% of 20-year-olds will become disabled for 3 or more months before reaching the age of 67.1 The lesson here? Everyone who depends on a paycheck for survival should invest in long-term disability coverage. In addition, most people are working to support themselves as well as others, such as a spouse, children, or elderly parents, putting entire families at risk if the need for disability insurance is overlooked.4 Disability insurance is also especially important for self-employed workers or those who cannot rely on employer-paid sick leave.5
It’s easy to dismiss the risk if you think of disabling conditions only as worst-case scenarios like paralyzing spinal cord injuries or catastrophic accidents. But in reality, common health issues such as diabetes, cancer, back injuries, heart attacks, and other illnesses make up the majority of disability claims.1 If asked, the vast majority of workers could easily name a family member or close friend touched by at least one commonly disabling condition, never realizing that the average duration of a long-term disability claim for these conditions is 34 months. Research also indicates that home foreclosures are 16 times more likely to occur due to disability than death, while a 2014 study confirmed that 26% of consumers filing for bankruptcy do so because of crippling medical debt. Another 20% file for bankruptcy due to job loss, and illness or injury is reported as the catalyst for another 15% of filings.8 Even so, at least 51 million U.S. workers don’t have disability insurance other than the basic coverage available through Social Security.8
Many wrongly assume Social Security Disability Insurance (SSDI) would automatically kick in to replace needed income if they’re unable to work due to disability. However, the process for qualifying for SSDI and getting approved for benefits is notoriously long and complicated.1 Research indicates that for the period of 2006 - 2015, only 34% of SSDI applications were approved. Of that number, 11% were only approved after completion of the appeal or reconsideration process, which generally takes more than 18 months to navigate.8 And, those who are approved for SSDI benefits receive an average benefit of $1,197 per month, a fraction of the income available through a private disability policy.4,8
Playing the SSDI waiting game can often feel like the only available option as employers provide fewer benefit options and shift insurance costs to employees, shedding light on the growing need for individual long-term disability coverage. While limited short and long-term disability insurance is sometimes available through employer programs, the benefits usually only provide 40-60% of basic monthly earnings (excluding bonuses, overtime, etc.) and are capped at a specific monthly dollar amount. These benefits are available for a set number of years or until retirement age, depending on specific policy language.1
In contrast, private policies may include a more beneficial definition of disability (i.e. disabled from own occupation vs. any occupation) and cover a higher percentage of income.9 Pricing for individual long-term disability coverage has held stable for several years, with premium costs hovering around 1% of gross annual income for coverage that provides 60- 75% of gross earned income without a monthly benefit cap. Considering the high likelihood of coverage use and amount available for purchase, individual long-term disability insurance is often an affordable, common-sense cornerstone of financial stability plans.
OPTIONS TO HELP MITIGATE YOUR DISABILITY RISKS
Although disability risk mitigation approaches and programs can differ across industries and roles, all drive toward a common goal: reducing the financial risks presented by injury and illness. Disability products can stand alone or work as companion coverage to life insurance that is commonly purchased to protect equity in the business world. Key Person, Buy Out, Business Overhead, Severance Packages, and Individual Income Protection are just a few of the various risks that can be protected with various Disability products. Disability insurance can provide everything from personal income replacement and Key Person protection to contingency and exclusions coverage. It’s also possible to provide very high limit, rapid coverage on an interim basis for individuals involved in corporate transactions while traditional life and disability underwriting takes place. Often Disability insurance can provide limits far in excess of what is available through traditional insurance products.
Without adequate disability insurance to protect against a loss in earnings, employees and those who depend on them can be caught living on the edge – at risk of losing their sense of security, homes, and future investments.5 Answering three simple questions can help when considering whether or not disability insurance is a worthy investment: What would I do if I couldn’t work? How long could I live without a paycheck?1 Would you spend 1% of your paycheck to protect up to 75% of your income? Dealing with a serious injury or disabling medical condition can be difficult enough without the extra worry of how to pay the bills. That’s why protecting income with adequate long-term disability insurance is a key component for keeping individuals and families secure.3
Contact your CRC Group producer to discuss how we can help meet your client’s private long-term disability coverage needs today.
- Chris Peterson is President of Hanleigh Special Risks. He is based in Windsor, Connecticut where his team specializes in providing world-class disability insurance solutions.
Hanleigh Insurance is an admitted broker for Lloyd’s of London, known for partnering with A-rated markets. For more than 35 years, Hanleigh has specialized in providing products for high-limit disability, special risk contingency, and other niche insurance needs, balancing discipline, creativity, and industry-leading sales support to provide competitive insurance solutions quickly and accurately. Hanleigh also offers the highest degree of data security, continuously investing in both technology and people to support streamlined underwriting processes, top-tier customer service, and unmatched account management.
As a subsidiary of CRC Group, one of the largest wholesale providers of property and casualty insurance in the U.S., clients can depend on Hanleigh’s exceptional financial stability and tireless commitment to putting deep experience, extensive market knowledge, and unique consultative strategies to work on behalf of every client.
- Disability Insurance: Why You Need It and How to Get It, Nerdwallet, October 20,2017. https://www.nerdwallet.com/ blog/insurance/disability-insurance-explained/
- What is Disability Insurance and Should You Offer It to Employees?, JustWorks, October 11, 2019. https://justworks. com/blog/what-is-disability-insurance-and-how-does-it-work
- What is Disability Insurance and Do You Need It?, Dave Ramsey, 2020. https://www.daveramsey.com/blog/disability- insurance
- Disability Insurance Can Replace Your Income if You’re Injured or Too Sick to Work, but Not Everyone Needs It, Business Insider, July 12, 2019. https://www.businessinsider.com/personal-finance/disability-insurance-definition- cost-who-needs-it
- Why You Need Disability Insurance, Smart About Money, 2020. https://www.smartaboutmoney.org/Topics/Insurance- and-Taxes/Insurance/Why-You-Need-Disability-Insurance
- A New Approach to Disability Management, Risk Management, November 1, 2009. http://www.rmmagazine. com/2009/11/01/a-new-approach-to-disability-management/
- Chances of Disability, Council for Disability Awareness, 2020. https://disabilitycanhappen.org/overview/
- Disability Statistics, Council for Disability Awareness, March 28, 2018. https://disabilitycanhappen.org/disability-statistic/
- The Importance of Disability Insurance for Working Professionals, Your Richest Life, June 12, 2015. https://yourrichestlifeplanning.com/disability-insurance-importance/