Disability Insurance – Do You Need It?

Oct 2012

When you stop and think about it, our future income stream generated from our wage earning power is our greatest asset, yet most of us don’t think about it in those terms. We rush off to work or school each day unaware that in one brief moment, our life could be changed forever by a sudden unforeseen disability.

If you ask someone what their most valuable asset is, I bet most would answer their home. So, let’s take a look at the present value of someone’s lifetime employment wages who is earning, let’s say, $60,000 per year. For 30 years and a 3% inflation adjustment rate that equates to $1,176,000! Very few of us are in a position to replace that income, even for a couple of years, if we became disabled due to an injury or illness. While we know how important it is to have our home or autos insured, we don’t look at the value of insuring ourselves with the same urgency.

I was reading about a recent survey conducted by the State Farm Center for Women and Financial Services at the American College and it shed some surprising results regarding this issue and the views of women (and men) Here are some facts and statistics that I would like to share with you from that article:

• 22 %of all adults (47.5 million) reported a disability (per the US Census Bureau in 2005)
• Most Americans think it is highly unlikely that they or their spouses will become disabled in the next 10 years
• 97% of respondents to the survey did not correctly identify the leading cause of disability – ARTHRITIS. Most thought accidents were the leading cause, when in fact, only 5 %of disabilities were caused by work-related accidents. The remaining 95% are caused by chronic illnesses
• Since Arthritis effects women more than men, it makes sense that the Centers for Disease Control and Prevention found a higher rate of disability reported by females across all age groups when compared to males
• Women are about twice as likely (22 percent) as men (12 percent) to think their cash reserves would last less than one month if faced with lost wages due to a disability. Yet 71% of the respondents plan to rely on their savings to replace their income!
• Social Security Disability Insurance (SSDI) expanded 21 % from 2008 to 2009 according to the Social Security Administration
• In the decade from 1999 to 2009 SSDI applications for men grew by 42%, while applications for women grew by 72%; a wide disparity.
• Most lack financial plans and are uniformed about disability insurance. In fact, 61% of women and almost half of men (46%) have never researched disability insurance. About half of the survey respondents who cited having disability coverage through work or independently do not feel knowledgeable about their policies. Only 27% of individuals knew that their employer-provided disability benefits would be taxed. Another surprising result was that four in ten agree that most people do not need disability insurance because it is covered by other things (39%) and it does not make sense to buy insurance that they might never use (36%).

While we never know what is in store for us, just knowing what a monumental impact a disability could have on us and our families, should make you want to be better prepared and put a financial action plan in place.


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