Your Most Valuable Asset
...is probably tied up in earnings yet to come. Economically, can you think of anything more important for your independence, sense of self worth, and being a good provider to loved ones?
An Underestimated Risk
Council for Disability Awareness; The Disability Divide: A Consumer Disability Awareness Study; 2010; "How likely are you to be disabled for longer than 90 days before you retire?" See also, Milliman Inc; The Real Risk of Disability in the United States; on behalf of the LIFE Foundation; 2007
Who Needs It and Who Doesn't
Most individuals are not prepared to be forced into retirement by a health problem without great cost to their family, dignity and independence. The need for disability insurance is present until lifestyle can be supported with passive income sources alone.
The odds of disability are about twice that of death.
Prior to age 65, for periods of disability lasting 90+ days
National Association of Insurance Commissioners (NAIC) Individual Disability Table A (1985); Statistical Abstract of the United States. Illustrated using a unisex composite. Female ratios are about the same at age 55, but at age 35 disability is 6x higher than death.
Supporting Everything Else
Disability insurance is arguably the most basic of all insurance coverages because without income it is impossible to purchase anything else, such as medical insurance.
Financial Oxygen Supply
The importance of income justifies insuring it, not the probability of it's loss. Once a diagnosis makes income loss forseeable, tough choices have to made and things get emotional. At that point, there is no good answer for loved ones as to how something so important could have gone uninsured.
It's About Staying in Control
A "deal with it as it comes" strategy doesn't work with disability as well as it might with other types of losses because it hits at the cash source, and the effect of this constriction is felt more intensely with each passing month. Most other insurable risks at least leave the means to adapt intact.
The deepening of financial problems over time has a profound effect on individual control. To understand this, imagine you could only choose one type of insurance - medical or disability. Even the best medical insurance cannot provide adequate financial oxygen to meet the battery of commitments an average family faces each month. If, however, income were guaranteed, the family would at least have cash to operate and can control how medical bills will be handled (e.g., payment plans, renegotiation, legal protections). This is not to suggest that one insurance is more important than the other. Rather, that income protection is about staying in control of your own destiny.
Leading Reasons for Returning To Work
Although the absence period is usually temporary, health and productivity often continue to be compromised, leaving the worker exposed to ongoing earnings loss and job insecurity.
Social Security Administration; Industry, Occupation, and Disability Insurance Beneficiary Work Return; Social Security Bulletin; Vol. 62, No. 1; 1999; p19. Among other reasons, 19% because they wanted to work, 11% because rehabilitation made work possible, and 8% for other reasons.
Beyond Personal Control
Disability risk is perhaps the least controllable of all risks because no individual can avert the entire spectrum of potential illnesses by making good choices. A healthy diet, for example, will not prevent neurological disease.
A firm established by two 35-year old co-owners faces a 75% probability that at least one owner will sustain a long term disability prior to age 65.
Allan B. Checkoway; Insuring the Disability Hazard in the Small Closely Held Corporation; Journal of the American Society of CLU & ChFC; January 1985, based on 1964 Commissioner's Disability Table
95% of disability claims are classified as off-the-job, when Workers Compensation doesn't apply.
Council for Disability Awareness; Long Term Disability Claims Review; 2011
Your Most Valuable Asset
A typical mid-career professional with $100,000 annual earnings is counting on a future income stream totaling more than $2,000,000...
probably their largest asset.
Take the time to do the math for yourself.
Where Do People Return To Work?
The Link to Job Instability
Job instability is strongly associated with disability for many reasons, including work changes, ongoing underperformance, former position being filled, and intermittent/recurring absence.
Since the absence period is usually temporary, a key financial planning objective is to lock down some path to guaranteed coverage security if the individual returns to work for a different employer or becomes self-employed.
Social Security Administration; Industry, Occupation, and Disability Insurance Beneficiary Work Return; Social Security Bulletin; Vol. 62, No. 1; 1999; p19. 75% returned to work for an employer other than the one they were with at the start of disability.
Brian Bushlach's Business Briefing
Originally aired on KVI Seattle, September 23, 2017
Duration: 10 minutes