Disability Insurance = Income Insurance

Most Americans insure their homes and their cars. Yet fewer have insurance on their most valuable asset—their ability to earn a living.

According to the Bureau of Labor Statistics, only 49 percent of American workers have access to disability insurance through their employer. A survey by America’s Health Insurance Plans found that more than 80 percent of employees wanted their employer to provide access to disability insurance. Employers that offer disability benefits on a voluntary basis can respond to an important employee need without increasing their benefit costs.

Why Are Disability Benefits Important?

Disability happens more often than you might think. The Council for Disability Awareness, an insurer trade group, reports that:

• More than 1 in 4 of today’s 20 year-olds will become disabled before they retire.
• About 12 percent of Americans are classified as disabled. More than 50 percent of those disabled Americans are in their working years, from age 18-64.
• 64 percent of wage earners believe they have a 2 percent or less chance of being disabled for three months or more during their working career. A worker entering the workforce today actually has a 25 percent chance.
• The average group long-term disability claim lasts 34.6 months.
• The average individual disability claim lasts 31.6 months.
• One in eight workers will be disabled for five years or more during their working careers.

Relying on Social Security Disability benefits (SSDI) if you become disabled could prove a poor strategy. Although Social Security does provide disability benefits, eligibility requirements are stringent and applying takes a long time. Allsup, a company that represents applicants for disability benefits, said the approval rate for initial disability claims declined to 33 percent in fiscal year 2013, down from 36 percent in FY 2008. Once a claim reached the hearing level, the approval rate climbed only to 48 percent—leaving half of claimants without benefits.

Even if a claimant does receive Social Security disability benefits, they don’t amount to much. In August 2015, SSDI benefits averaged $1,022 per month—not enough to replace the average full-

time employee’s wages.

Contrary to what many people think, most disabilities are not work-related, so workers’ compensation insurance would not apply. Disability income insurance can fill the gap. It pays the insured a benefit when he or she cannot work due to disability. Policies can cover either short-term disabilities or long-term disabilities. Short-term disability policies generally begin paying benefits after an employee has exhausted sick leave benefits. Coverage lasts a maximum of six months.

Long-term disability policies have a longer “elimination period,” or period during which you must be disabled and unable to work, before they will pay benefits. Most will begin paying benefits after your disability lasts six months. Employees who have savings or other sources of income, such as a working spouse, might opt for a longer elimination period to lower their premiums. Most long-term disability policies will pay benefits until the insured reaches age 65.

Disability policies will replace only a portion of an insured’s lost income, usually 60 percent, up to a maximum monthly benefit. Insurers structure policies this way to give employees incentive to return to work. However, if employees pay their own premiums for coverage, they will receive any benefits free of income taxes.
For an employee who becomes disabled, disability insurance brings peace of mind. Having income replacement benefits can mean the difference between being able to relax and focus on recovery or worrying about paying bills and running up debt. Employers can provide this valuable benefit on a voluntary, employee-paid basis