Why Disability Insurance is More Important Than You Think
June 13, 2012In my last guest blog post for Financial Finesse “Why Your Employer’s Disability Insurance May Not Be Enough”, we reviewed the concept of group long term disability insurance. In this post, we’re taking a more in-depth look at why you would even want disability income insurance. The answer is quite simple. If you have an income that you are dependent upon, then you have a need for disability insurance and the question is what programs are out there.
Did you know that…
- 3 in 10 workers entering the workforce today will become disabled for some period of time before they retire (Social Security Administration, Fact Sheet, January 31, 2007)?
- more than 90 percent of disabling accidents and illnesses are not work-related, which means they aren’t covered by worker’s compensation insurance (National Safety Council, Injury Facts, 2004)?
- most Americans don’t have enough savings to meet short-term emergencies (2004 National Investment Watch Survey)?
- disability was behind nearly 50 percent of all mortgage foreclosures (Health Affairs, the Policy Journal of the Health Sphere, February 2, 2005)?
- 56 percent of workers who currently receive Social Security disability benefits are under age 55 (Social Security Administration, 2007 Annual Statistical Report)?
- nearly 60 percent of workers have not discussed with their families how they would handle or manage an income-limiting disability (Council on Disability Awareness, 2007 Disability Awareness Survey)?
If you’re like most people, you probably found these statistics surprising. Most of us tend to think about auto insurance, homeowner’s insurance, and even life insurance. Yet, dollar for dollar, long-term disability insurance may be one of the most important financial planning and protection resources available to you.
For disability insurance, the projected payout for a 35-year-old who earns $50,000 a year and is disabled for the rest of his or her life with an eligible benefit of 60 percent would have an annual benefit of $30,000 for a total payout of $900,000 (until retirement age of 65). Compare that with the potential payouts of your auto and life insurance policies.
And yes, there is coverage through Social Security – the Social Security Disability Insurance Program – Social Security replaces only a limited portion of your salary, and the qualifications to receive benefits are very strict. According to the 2010 edition of the Annual Statistical Report on the Social Security Disability Insurance Program, in 2009, only 34.5 percent of workers’ applications were approved. And if you are approved, the benefit is most likely not going to be sufficient to cover your monthly expenses. According to the 2007 Annual Statistical Report on the Social Security Disability Insurance Program (Table 43), the average monthly benefit awarded in 2007 to disabled workers was $1,053.50. And if you’re still considering whether to rely strictly on Social Security, the latest figure from Bloomberg is that by 2016, the SSDI Trust will have reduce benefits to 79% of their current level as the plan now stands (based on current benefit payouts, expenses and funding).
To learn more about whether you need disability insurance, how to obtain it and how to monitor your existing policy, you can pick up a copy of the just released The Questions and Answers on Disability Insurance book which features worksheets, statistics, policy definitions and everything you need to know about disability income insurance at www.lifeinsurancesage.com.