Real stories are the best way to bring attention to disability. Three people I know immediately come to mind when I think about disability, two who have permanent disabilities and one whose disability was temporary. The first suffered brain damage from anesthesia during a relatively routine surgical procedure (proving that there is no such thing as a "routine" surgery). He has short-term memory loss and is not able to keep a job. The second became permanently paralyzed in a skiing accident. The third suffered severe depression that prevented him from working; fortunately, treatment was successful and he is back at work again after one year of unemployment.
What happened to these individuals could easily happen to you or someone in your family. So what can you do to deal with the possibility of disability? One step is to purchase insurance. Yet many people don't think about the importance of having disability coverage. Even those individuals who would never drive their car without having auto insurance or take the risk of going without health insurance may not have adequate disability protection.
I don't know anyone who likes insurance, but it's a necessary evil. Some types of insurance are required by different authorities―we take for granted the need to have car insurance (since it's required by state law), homeowners insurance (since the mortgage lender requires it) and health insurance (because the federal government will soon require all Americans to have it). When it comes to disability insurance, people who have employer group life and disability coverage may think they are "already covered," but chances are they haven't considered whether their group coverage meets their actual needs.
The true need for disability insurance is frequently overlooked or ignored for two reasons. First is the "it won't happen to me" syndrome and second is the cost. Disability insurance is expensive because the risk or probability of disability is great and the benefits or insurance claims payments can be substantial.
According to the Council for Disability Awareness (citing 2009 data from Northwestern Mutual), here is the percentage of people who indicated they "would feel devastated" in a potential situation and have purchased a related insurance product for protection:
- 88% have car insurance in case of a traffic accident.
- 73% have homeowners insurance in case their house burns down.
- 23% have purchased insurance to cover a cancelled vacation.
- 19% have credit card fraud insurance.
- 10% have purchased disability insurance.
In the "it won't happen to me" category, disability insurance is not just for the blue collar laborer. According to the Council for Disability Awareness 2011 Long-term Disability Claims Review, the following issues are the leading cause of over 70% of new disability claims:
- 27.5% Musculoskeletal/connective tissue disorders
- 14.6% Cancer
- 10.3% Injuries and poisoning
- 9.1% Cardiovascular/circulatory disorders
People fear dying, but disability is a greater risk. For people earning over $70,000 per year, the percent greater chance of becoming disabled for more than one year versus dying in the next 12 months, based on age, is:
- At age 30, 93% greater chance of becoming disabled
- At age 40, 123% greater chance of becoming disabled
- At age 50, 166% greater chance of becoming disabled
- At age 60, 259% greater chance of becoming disabled*
*According to the Society of Actuaries Individual Disability Morbidity Tables, Accident and Sickness combined.
About Bruce J. Berno, CFP®
Bruce J. Berno, CFP®is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com/.
