May Is Disability Insurance Awareness Month
May is National Disability Insurance Awareness Month. The campaign, launched in part by the Council for Disability Awareness, is used to educate wage earners on the importance of planning ahead should their income source be disrupted by an unexpected disability. Because many advisors and agents butter their bread with retirement planning and life insurance products, disability insurance is probably not a topic that comes up in too many client meetings.
But it should. If you’re asking why, the answer can be found within the annals of pop culture.
Dr. Steven Strange was at one time considered the top neurosurgeon in the world. That all changed one fateful night when he was involved in a fiery car crash. While Strange survived the crash, his hands—once skilled surgical instruments—were injured beyond repair. Despite months of treatment, his hands never fully healed. Dr. Strange would never perform surgery again. One tragic incident, one miscalculation on a windy, mountainside road was all it took to ruin a lucrative career.
If you’ve seen the movie or read the comics, you’d know that Strange drained his life savings in pursuit of a remedy for his career-ending disability. Sure, he eventually stumbled upon an ancient mystic, gained superpowers beyond imagination, and has saved the universe a dozen or so times. But in the real world, the story of Dr. Strange would have ended with “drained his life savings.” Unless, of course, he had a good disability insurance plan
Assuming that none of your clients are superheroes, the following paragraphs (rooted in facts, rather than comic book fantasy) should illustrate the value of a private disability insurance plan.
According to the Council for Disability Awareness, at least 51 million working adults in the U.S. do not have disability coverage other than what is available through Social Security.
This is a staggering figure, especially when we consider that 48% of American adults would not have enough savings to cover three months of living expenses if something happened that prevented them from earning any income. Couple that with a recent report that found nearly half of all foreclosures on conventional mortgages are caused by a disability or other medical-related setback, and it’s easy to see why agents and advisors should encourage their clients to consider adding disability insurance to their existing plan.
However, it seems that many believe (or at least hope) that Social Security Disability Insurance (SSDI) will be enough to keep them afloat if they become disabled. Data from the Social Security Administration reveals a much more sobering truth. At the onset on 2018, the average monthly disability payout was $1,197. That’s barely enough to keep the beneficiary above the current poverty level.
This is why even the federal government discourages people from banking on SSDI should an injury or medical condition render them disabled. By their own admission, the Social Security Administration has tacked a very strict definition on the term “disability.” As stated on the agency’s website, a person is only considered disabled if:
• You cannot do work that you did before;
• They determine that you cannot adjust to other work because of your medical condition(s); and
• Your disability has lasted or is expected to last for at least one year or to result in death.
Furthermore, SSDI benefits are not available for those determined to be suffering from a partial or short-term disability.
Of those who meet those guidelines and applied for benefits, only about one-third were actually approved to receive payments. And those payments typically won’t start coming in until after the roughly six-month waiting period. Someone who is forced to live within those means for several years, if not permanently, can forget about setting up or holding onto any sort of retirement nest egg.
So, if you look at life insurance as a way to soften the financial blow that comes with a death (income loss, funeral expenses, medical/hospital bills), then you should look at disability insurance in a similar light. Essentially, a personally-owned disability insurance policy, when used strategically with additional sources of income, can provide the insured with a comparable amount of stability and security they enjoyed before becoming disabled. Or, in cases where he/she will be able to eventually return to the workforce, it can keep money coming in while they recover or learn a new skill. This can also be the key to avoiding asset liquidation or dipping too deeply into existing retirement or life insurance funds.
Several factors will determine the details of an individual personally-owned disability insurance policy. First, the policyholder’s current situation should be taken into account. How much income will they need in the event of a disability? What additional sources of disability income are available to them (employer-provided short/long-term disability benefits, SSDI, existing income sources such as investments, savings, CD, etc.)? How much can they currently afford to put toward monthly premiums?
Once those questions are answered, then you can start hashing out the finer points of the policy, such as how long they must be disabled before benefits kick in (e.g. 60, 90, 180, 365 days) and how long they will receive those benefits (one year? five years?). Most policies only pay until the insured turns 65.
An important component here is the definition of total disability. Because this would be a personally-owned policy, the definition is a little more relaxed than the one given by the SSA. It can range from “the inability to perform their current occupation to the inability to work in any reasonable occupation based on their education, training, and experience.”
Other factors that will affect the overall policy are whether the individual wants the policy to provide benefits for partial disabilities following a period of total disability and if they want any rehabilitation expenses covered. Premium waivers, renewability options, the impact of inflation, and cost-of-living riders should also be a part of the conversation.
To our knowledge, the astonishing tale of Dr. Strange is perhaps the only example of NOT holding a personally-owned disability insurance policy working out for a person whose main source of income was taken away due to a disability. But he’s not real. And in the 12 years that May has been used to raise awareness about the value of disability insurance, the numbers suggest consumers are still slow to get the message. So, it’s up to you—Super Advisor/Agent—to the real hero here.
Next week, we’ll explore how liability insurance could have protected a science lab from litigation after a high school student touring the facility was bitten by a radioactive spider. Just kidding…