When asked to list their most valuable assets, many people would place a home, car, or 401K at the top of the list - and they’d be wrong. While those are important - even vital - pieces of living life, a person’s most valuable asset is actually the ability to make a living, working to pay their mortgage, fuel their vehicle, and fund that retirement account. If unexpected illness or injury derails those efforts, life quickly begins to unravel on all fronts. Research indicates that millions of Americans lack adequate savings to handle a medical emergency, even as healthcare costs continue to skyrocket. As a result of rising expenses, employers are often eliminating or reducing benefit offerings, creating a perfect storm of financial distress when employees cannot work due to illness or injury. Just over 40% of workers have access to short-term disability coverage through their employer, and only 35% have access to long-term disability protection.² Fortunately, private disability insurance is available to help meet financial needs when adversity comes knocking. 

WHAT IS LONG-TERM DISABILITY INSURANCE AND WHO NEEDS IT? 

 Long-term disability insurance pays a specific portion of a person’s income when he or she is unable to work for an extended period due to accident, illness, or injury.³ Unlike Worker’s Compensation, which only provides benefits if an employee is hurt on the job, disability insurance provides coverage when a person becomes ill or disabled for any reason.³ While the odds of missing months of work due to an illness or injury may seem small, the Social Security Administration estimates that workers ages 20 and older have a 25% of becoming disabled before normal retirement age.⁴ The lesson here? Everyone who depends on a paycheck for survival should invest in long-term disability coverage. In addition, most people are working to support themselves as well as others, such as a spouse, children, or elderly parents, putting entire families at risk if the need for disability insurance is overlooked.³

Disability insurance is especially important for self-employed workers or those who cannot rely on employer-paid sick leave. A disability can be devastating for a self-employed person. Fortunately, a disability policy can replace missing income if a self-employed individual is not able to perform their “own occupation.”⁵ 

Many people think of worst-case scenarios like paralyzing injuries or catastrophic accidents when they think about disability. But disability is often caused by common health conditions like musculoskeletal disorders, cancer, fractures or sprains, mental health issues, and circulatory disorders.

TOP 5 LEADING CAUSES OF LONG-TERM DISABILITY CLAIMS:⁶ 

1. Musculoskeletal disorders 27.6%
2. Cancer 15%
3. Injuries like fractures, sprains, and strains 12%
4. Mental Health Issues 9.3%
5. Circulatory issues like heart attack and stroke 8.2%

Disability can have serious financial consequences. Individuals are more than 2 times as likely to be late making their mortgage payments, 72% more likely to overdraw their checking account, and 230% more likely to take a loan from retirement savings. Among all disabled adults, two-thirds are unemployed and 57% make less than $35,000 per year^.7

Many wrongly assume Social Security Disability Insurance (SSDI) would automatically kick in to replace needed income if they’re unable to work due to disability. However, the process for qualifying for SSDI and getting approved for benefits is notoriously long and complicated. In 2022, only about 35% of initial SSDI applications were approved. The approval rates vary by state, but Oklahoma had the lowest approval rate at 31%, while Alaska hit the highest approval rate of 65%. There is an appeal process for application denials, but in 2022, only 13% of applications were approved at the first appeal stage. Of applications that advanced to the appeal hearing stage, 54% were approved.⁸ It generally takes 10 months to a year to reach reconsideration - the first appeal level. If an appeal requires a hearing, the process could take 18 months to two years.⁹ Those who are ultimately approved for SSDI benefits receive an average benefit of $1,234 per month, a fraction of the income often available through a private disability policy.¹⁰

Playing the SSDI waiting game can often feel like the only available option as employers provide fewer benefit options and shift insurance costs to employees, shedding light on the growing need for individual long-term disability coverage. While limited short and long-term disability insurance is sometimes available through employer programs, the benefits usually only provide 60% of basic monthly earnings (excluding bonuses, overtime, etc.) and are capped at a specific monthly dollar amount. These benefits are available for a set number of years or until retirement age, depending on specific policy language.¹¹

In contrast, private policies may include a more beneficial definition of disability (i.e., disabled from own occupation vs. any occupation) and cover a higher percentage of income. Pricing for individual long-term disability coverage has held stable for several years, with premium costs hovering around 1% of gross annual income for coverage that provides 60%-75% of gross earned income without a monthly benefit cap. Considering the high likelihood of coverage use and amount available for purchase, individual long-term disability insurance is often an affordable, common-sense cornerstone of financial stability plans.

OPTIONS TO HELP MITIGATE YOUR DISABILITY RISKS

Although disability risk mitigation approaches and programs can differ across industries and roles, all drive toward a common goal: reducing the financial risks presented by injury and illness. Disability products can stand alone or work as companion coverage to life insurance that is commonly purchased to protect equity in the business world. Key Person, Buy Out, Business Overhead, Severance Packages, and Individual Income Protection are just a few of the various risks that can be protected with various disability products. Disability insurance can provide everything from personal income replacement and key person protection to contingency and exclusions coverage. It’s also possible to provide very high limit, rapid coverage on an interim basis for individuals involved in corporate transactions while traditional life and disability underwriting takes place. Often disability insurance can provide limits far in excess of what is available through traditional insurance products.

BOTTOM LINE

Without adequate disability insurance to protect against a loss in earnings, employees and those who depend on them can be caught living on the edge – at risk of losing their sense of security, homes, and future investments. Answering three simple questions can help when considering whether or not disability insurance is a worthy investment: What would I do if I couldn’t work? How long could I live without a paycheck? Would I spend 1% of my paycheck to protect up to 75% of my income? Dealing with a serious injury or disabling medical condition can be difficult enough without the extra worry of how to pay the bills, making income protection through adequate long-term disability insurance a key component for keeping individuals and families secure. Contact your CRC Group producer to discuss how we can help meet your client’s private long-term disability coverage needs today.

CONTRIBUTORS

• Chris Peterson is President of Hanleigh Special Risks. He is based in Windsor, Connecticut where his team specializes in providing world-class disability insurance solutions.

Hanleigh Insurance is an admitted broker for Lloyd’s of London, known for partnering with A-rated markets. For more than 45 years, Hanleigh has specialized in providing products for high-limit disability, special risk contingency, and other niche insurance needs, balancing discipline, creativity, and industry-leading sales support to provide competitive insurance solutions quickly and accurately. Hanleigh also offers the highest degree of data security, continuously investing in both technology and people to support streamlined underwriting processes, top-tier customer service, and unmatched account management. As a subsidiary of CRC Group, one of the largest wholesale providers of property and casualty insurance in the U.S., clients can depend on Hanleigh’s exceptional financial stability and tireless commitment to putting deep experience, extensive market knowledge, and unique consultative strategies to work on behalf of every client.

END NOTES

1. 2021 Fact Sheet: Disability Insurance Awareness Month, LIMRA, 2021. https://www.limra.com/siteassets/newsroom/fact-tank/fact-sheets/diam-2021-final.pdf
2. Employee Benefits in the United States – March 2022, Bureau of Labor Statistics, September 22, 2022. https://www.bls.gov/news.release/pdf/ebs2.pdf
3. See the Essentials About Long-Term and Short-Term Disability Insurance, The Balance, December 9, 2022. https://www.thebalancemoney.com/what-is-long-term-disability-insurance-1918178
4. Disability and Death Probability Tables for Insured Workers Born in 2001, Social Security Administration, November 2021. https://www.ssa.gov/oact/NOTES/ran6/an2021-6.pdf
5. Long-term disability insurance advice for people who are self-employed, Policygenius, January 13, 2023. https://www.policygenius.com/disability-insurance/self-employed-long-term-disability-insurance-advice
6. Disability Statistics, Council for Disability Awareness, September 30, 2021. https://disabilitycanhappen.org/disability-statistic/
7. The Financial Challenges of Disability, National Disability Institute, December 2018. https://www.nationaldisabilityinstitute.org/wp-content/uploads/2018/12/finra-infographic.pdf
8. Social Security Disability Approval Rates by State and Hearing Office, Atticus, March 31, 2023. https://www.atticus.com/advice/general/social-security-disability-approval-rates-by-state
9. Your Chances of Winning a Social Security Disability Appeal (Your Odds Change with a Lawyer), Atticus, August 9, 2022. https://www.atticus.com/advice/general/your-chances-of-winning-a-social-security-disability-appeal-your-odds-change
10. Facts, Social Security Administration, 2020. https://www.ssa.gov/disabilityfacts/facts.html
11. How much does long-term disability insurance pay?, Policygenius, November 3, 2022. https://www.policygenius.com/disability-insurance/how-much-does-long-term-disability-insurance-pay/
12. Are You Underestimating Your Need for Disability Insurance?, Kiplinger, August 29, 2018. https://www.kiplinger.com/article/insurance/t012-c032-s014-dont-underestimate-need-for-disability-insurance.html