Is Disability Protection Important?
The Sad State of Employee (Lack of) Knowledge
Is disability protection important? Well, if you can’t work, you can’t have luxuries – maybe not even necessities.
So trite as it may seem, your most valuable asset isn’t your home or your car or your stock portfolio; it’s your ability to earn the income to buy those things.
However, despite the importance of protecting your ability to earn a living, a majority of Americans are totally uneducated about long-term disability insurance.
Just for fun, try answering these three True/False questions:
- If I am disabled, I can easily receive Social Security to cover my expenses and supplement any shortcomings in my employer’s plan.
- Disability insurance means the same thing as worker’s compensation; if I am injured, my company will take care of me.
- My medical/health benefits will completely cover me in the event of an illness or accident that prevents me from working.
As a business executive, you probably got most of those answers correct, but how would your employees do?
Those three questions were part of a recent survey done by MDRT, an insurance industry association. The results show that, when it comes to disability protection, most employees don’t know what is and isn’t covered or by whom.
The Survey’s Instructive Results
Let’s review the questions above.
#1 — You probably know that Social Security isn’t a guaranteed source of disability income — apparently so do most of the employees questioned; nearly 75% of those surveyed correctly answered “false” to that question.
Social Security denies benefits for most initial applicants, and those who do receive benefits are the sickest and least likely to survive. If Social Security were optional, you probably wouldn’t buy it.
#2 — Also, like two-thirds of survey participants, you probably knew that disability insurance and workers’ compensation are different.
Workers’ compensation insurance only covers workplace accidents; if you are disabled from an illness or an off-the-job accident, workers’ compensation pays you nothing.
#3 — Surprisingly to me, the last question proved the toughest. About 64% believed that their medical insurance would completely cover them for a disability from an illness or accident.
Wrong. Medical bills, yes; income protection, no.
Given that level of misunderstanding, I guess it’s not surprising that the same survey revealed that Americans are vastly under protected against disability. Here are some highlights (lowlights?):
- 7% had no idea what protection, if any, they had against disability.
- A further 15% had no coverage whatsoever.
- 35% rely solely on the coverage given them by employers, and
- 43% purchase individual disability policies, either in addition to an employer’s group plan or totally on their own.
Who Answered and What Did They Say?
Those aged 35-44 were most likely (42%) to personally own a policy, while fewer than 30% of those ages 25-34 did. Women did slightly better on the knowledge questions but were less likely to own a disability policy.
Hispanics were more likely (40%) to own a personal policy than whites (32%), but they were more likely to believe that workers’ compensation was the same as disability.
Perhaps even more confusing was that those who know a disabled person were no more likely to purchase a policy than those who don’t know one.
There were other interesting details. For example, 35% of respondents identified their house as their most important personal asset, while only 26% identified their incomes as most important.
I wonder how that 35% plans to pay their mortgage while disabled?
Why Don’t People Buy LTD?
Larry Kolasa, a Michigan disability insurance specialist, said, “We live in a society where we think some higher power will take care of us, be it our company, our family, or the government. That’s a very false sense of security.”
He’s correct. Group policies have limitations on what disabilities they’ll cover and for how long they’ll cover them. Those limitations can leave a big gap.
Give me a break.
We have the lowest savings rate in the world, and most of us live paycheck to paycheck.
Why, then, do we think we could lose half our take-home pay but maintain our financial stability? We are an optimistic people (Pollyanna-ish?), but we have stuck our collective heads in the sand.
So, why don’t we buy more disability protection?
- 20% of Americans (most common answer) believe that disability insurance is “too expensive.”
- 16% (second most common reason) was overconfidence in their employer’s group plan.
- Almost one-third had no reason whatsoever why they didn’t have coverage. Clearly, they hadn’t thought about it.
We think we understand workplace disability coverage, but do we really?
Nearly 40% said their employers had given them enough information about disability, while only 22% said their employers told them nothing.
And since 43% of those who were “informed” purchased supplemental coverage and only 23% of the “uninformed” group did, maybe employers are explaining things.
But hold on — maybe the “informed” aren’t that informed, after all. The “informed” workers who had no supplemental policies believed that the group policies were sufficient protection.
Almost 75% of “informed” employees believed their medical plan would protect them against disability, but only 49% of the “uninformed” group made that mistake.
If you’d like to learn more about the two types of disability protection, Individual Disability policies (DI) and Group Disability policies (LTD), click here to leave this page, “Is Disability Protection Important?” and move to “Disability Insurance Rates” page for a discussion of the two types, their relative cost, and a sense of how to use them together.
If you’d like to get a feel for what constitutes a disability and what language you should watch for, click here to leave “Is Disability Protection Important?” and to go to the “Definition for Disability” page, which discusses those subjects and gives an idea about how to structure your plan.