Most Americans Unprepared for Disability

Posted by cskadmin on September 13, 2012

The majority of Americans lack basic knowledge about the likelihood of a disability and are unprepared to cope with this type of life-altering event. Women across all age groups are at higher risk than men of  becoming disabled at some point during their working lives.

For millions of Americans, purchasing adequate disability income insurance is a potentially effective way of protecting against the financial hardship that could arise if illness or injury were to result in a long-term absence from work. Yet a new study found that the majority of Americans lack basic knowledge about the likelihood of a disability and are unprepared to handle such a life-changing event.1

The Social Security Administration estimates that one in four of today’s 20-year-olds will become disabled at some point during their working years. The study found that women across all age groups report a higher incidence of disability than their male counterparts, with arthritis and back/spine problems being the leading causes.

The financial impact of disability can be severe. A person with an annual income of $50,000 who works for 40 years is projected to make more than $2 million in future earnings. The loss of these earnings can be devastating for an individual or a family — and for women, the financial consequences can be more severe. The study found that women are twice as likely as men (22% vs. 12%) to think their cash reserves would last less than a month. Single women have an even bleaker outlook.

According to the study, 61% of women and 46% of men have never researched disability insurance — and fewer than 10% have purchased disability insurance plans. Even among individuals who work with a financial advisor, awareness and planning around the topic of disability is low. Fewer than half have consulted with advisors about what would happen if they or their spouse became disabled, and fewer women (37%) than men (52%) have had this discussion with an advisor.

Types of Insurance

For most people, there are two main forms of disability income insurance to consider: employersponsored policies and private insurance policies. Employer-sponsored policies (called “group” policies) are relatively inexpensive to purchase and generally remain in effect for as long as the individual continues to work for the company.

Private insurance policies are paid for by individuals and provide coverage when group policies don’t apply or don’t provide enough income. On the surface, a private policy is usually more expensive to purchase than a group policy. However, a private policy’s potential to provide much greater benefits over time may make it a more prudent long-term choice.

For all practical purposes, if you need the income you earn at work, you probably also need disability income insurance. Among those who are most likely to need disability income insurance coverage are small-business owners, the self-employed, high-income professionals, and the primary breadwinners in a household. Your insurance professional can help you find out if you have enough coverage.
1Source: State Farm Center for Women and Financial Services, “Women and the Risk of Disability,” May 2012.

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