Long-term disability insurance may be one of the most undersold policies in the U.S. considering the statistics from the Social Security Administration about the odds of becoming disabled:
• Between the ages of 35 and 65, seven out of 10 people will become disabled for three months or longer.
• One out of seven employed people will be disabled for five years or more before age 65.
• The average long-term loss due to disability is more than five years.
• The average American household only has two months worth of savings in reserve.
• Regarding group disability or workers’ compensation coverage, people are only covered if they have been injured on the job. And those benefits are typically quite low compared to a worker’s normal salary.
It may be that many people think if they do become disabled, they will be taken care of by Social Security. But, again, the facts are sobering. Social Security isn’t that easy to get with only a third of Society Security disability claims approved in 1998. There is a five-month waiting period before Social Security will pay an approved claim. And Social Security also requires that the disability last at least 12 months. So if a person is only out of work six months, there won’t be any payments.
Most people live thinking they aren’t ever going to be disabled, says Margaret Touchstone, an employee benefits specialist with SouthGroup Insurance in Greenville.
“That is the reason why people don’t usually buy disability insurance,” Touchstone said. “They don’t think it will happen to them. I doubt most people even understand what long-term disability insurance is. Actually, disability insurance is more important than life insurance because disability insurance is for the living. There is short-term disability insurance, as well, that covers you for accidents and illnesses up to 90 days. Long-term picks up after 90 days, and that can cover you anywhere from two years to a lifetime.”
Another reason why disability isn’t more popular is that it can be expensive. Premiums are based on the type of work being done. For example, disability insurance will be more for someone doing manual labor who is more likely to be injured than for an office worker.
“Doctors, especially surgeons, are hard to find disability insurance for,” Touchstone said. “If they can’t use their hands or leg or brain, then they are totally incapacitated for what they have been educated for. Very few insurance companies will write disability insurance on a doctor with the “own occupation” definition. And, if you can find it, normally the amount covered is not near what a doctor makes. Therefore, most doctors have individual disability insurance as well as group disability insurance, and both policies will pay if a doctor becomes disabled.”
A disability policy can be useful if someone is no longer able to do what they are educated for, but can still do other tasks such as answering the phone in an office. Touchstone’s example is that if she got disabled and wasn’t able to go around selling insurance, she wouldn’t be paid as much for staying behind in the office answering the phone.
“That is where the ‘own occupation’ definition comes in,” Touchstone said. “I want a disability policy that covers what I have been educated and trained to do.”
When considering disability policies, Touchstone said it is important to look at definitions in the policy and the rating of the company. Find out if the company has paid disability claims and, if so, how many.
“That is all in their rating,” she said. “Trust your agent to find out those things for you so you aren’t having to do it yourself. The average Joe doesn’t know what to look for. Have someone who is paid to know what to look for give you advice.”
The need for disability insurance isn’t that different for self-employed individuals, or people who work for others.
Touchstone said if you become disabled and have no income, you are in a tough spot no matter what.And while important for both sexes, Touchstone said this kind of insurance is vitally important for women because of the high divorce rate and other considerations such as lower average earnings than men. It is less likely today that women will have a spouse to take care of them should they become disabled.
Contact MBJ contributing writer Becky Gillette at email@example.com.