A recent survey by Harris Interactive for America's Health
Insurance Plans (AHIP) found that most Baby Boomers
underestimate their risk of missing work for an extended
period of time due to a disability. Yet they believe that
they are more likely to suffer such a disability than to
die prematurely. What's wrong with this picture? Like most
breadwinners, Boomers buy family health insurance and life
insurance to protect their families while skimping on
long-term disability insurance.
How far off are the disability risk guesstimates of most
Americans? A study sponsored by the Life and Health
Insurance Foundation for Education called "The Real Risk of
Disability in the United States" found that a white-collar
worker between 35 and 65 years of age has a 27 to 31
percent chance of becoming disabled for 90 days or longer.
Unfortunately, the duration of disabilities has increased
substantially in the past few decades. In the 1970s and
80s, a 35-year-old male with such a disability would have
been out of work, on average, almost four years. Today it's
six, because better medical care means that people with
terminal illnesses are living longer. It does not, however,
mean they are able to pull in their pre-disability income
while they're ill.
Steven Crawford, a Maryland-based disability insurance
specialist, believes that a well considered policy is the
keystone to any sound financial plan. Unfortunately, he
notes, most financial advisers, not to mention the media at
large, rarely mention the subject, even though a person's
ability to generate income is by far their most valuable
asset.
"Everybody should have the maximum [benefits] they can
afford," Crawford says. "Somebody 20 years old—their
liability is huge. A 55-year-old's liability is less."
Figuring out how to find quality, low cost health insurance
suited to your specific needs is a time-consuming process.
First, you have to determine how much you'll need to
maintain your lifestyle, remembering to factor in new
expenses that could arise due to your disability. Then, you
calculate what income you'll receive from sources beyond a
private health insurance plan. These include benefits from
your employer's group plan, your personal savings, and
possible government benefits such as social security
disability insurance.
"If you're making a six-figure income, you really shouldn't
be covered by a group long-term plan," Crawford says. The
coverage is cheap, but you're not going to receive nearly
enough of your pre-disability income to sustain your
current lifestyle. Sixty percent is the standard rate of
income replacement on most plans. Why not higher? According
to Crawford, the insurers want to pay "the maximum amount
needed for you to get by without removing your incentive to
go back to work."
The subject is unpleasant for many, which may explain why
so many people think of injury when they hear the word
"disability." In fact, according to AHIP's Guide to
Individual Disability Income Insurance
(www.cap.org/apps/docs/insurance_programs/AHIP_Guide_Individ
ual_Disability.pdf), 89.5 percent of claims are caused not
by injury, but by illness. The guide is a great source of
information about the many types of policies out there and
the enormous variety of choices within each and every one
of those policies. It also contains a checklist of
questions to ask a reputable, knowledgeable agent when
you're ready to face the realities of your disability
insurance needs.
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Ryan Patterson is president of US Insurance Online, based
in Austin, TX. He graduated in 2000 from the University of
Texas with a combined business and computer science degree,
and started US Insurance Online in May of 2005 with fellow
entrepreneur Jim Waltrip. Visit
http://www.usinsuranceonline.com for help shopping for
insurance and for free insurance quotes.
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