Disability Insurance: PAIN OF PROCRASTINATION
MetLife Survey Reveals Vast Exposure to Disability Risks
Following the financial crises of the past several years, Americans today are acutely aware of the impact that unforeseen events can have on their financial lives. Most would acknowledge that it is important to be prepared and protected against unexpected life challenges such as a serious illness, injury or death. Despite this recognition, most workers do not have the necessary protection in place to preserve their income and maintain their lifestyle if they become unable to work due to a disability.
According to the MetLife Study of the Emotional and Financial Impact of Disability, six out of 10 respondents had no disability coverage at the time of their disability. And for those employees with coverage, nearly half (47 percent) had less than 25 percent of their income protected. The MetLife study showed that most employees were markedly unprepared for disability—failing to appreciate the importance of disability income protection and acquiring sufficient coverage.
Disability Takes an Emotional Toll
The stress of dealing with a sudden, unexpected disability can be a significant burden for workers and their families. Feeling physically or socially limited by their disabilities, workers may be unable to complete the usual everyday tasks or participate in activities that used to give them pleasure, such as sports. In fact, three-quarters (75 percent) of the survey respondents said their accident or illness had devastating or major effects on their lifestyles as well as on their confidence and their emotional well-being. Those with little to no coverage often reported feeling the most impacted by issues related to their disability. For example, 90 percent of respondents with inadequate coverage felt that their disability had a major or devastating effect on their emotional lives, compared to 63 percent of those whose coverage was at least adequate.
Specifically, workers can feel the strain of a disability in their relationships with families and friends. Having to depend on others for assistance with day-to-day tasks can make workers with a disability feel as if they have become a burden. More than half (52 percent) of those surveyed for the MetLife study reported that these dependencies took a toll on their relationships. The study also found that lack of disability coverage increased the likelihood that relationships would reach a breaking point—31 percent of respondents without coverage attributed the end of a relationship to their disability, as opposed to 13 percent of respondents with disability protection.
Reduced Income Is the Biggest Challenge
Still, the biggest challenge that many workers with a disability face is their new financial situation. According to the study, more than half (57 percent) of the respondents said the biggest adjustment they dealt with was adapting to living with a reduced income, compared to only 11 percent who considered adapting to their disability to be their biggest adjustment. Coping with reduced income can often mean major lifestyle sacrifices, such as giving up a home, selling possessions or declaring bankruptcy. Nearly two-thirds (62 percent) of respondents were forced to withdraw from savings and retirement funds in order to get by. About half (49 percent) had to turn to family and friends to borrow money, sometimes causing financial hardship for those who helped them.
As difficult as living with a disability may be, having the necessary income protection appears to be a major factor in reducing the strain of such a situation. And while having some disability coverage is better than having none, what makes the most impact for families is having adequate cover-age. For example, 88 percent of respondents with inadequate coverage said the disability had major impact on their feelings of financial security, compared to 61 percent of those with adequate coverage.
Unmarried Workers Face Additional Risk
Having the appropriate amount of income protection is especially important for unmarried workers, who have no spousal income to fall back on. Unfortunately, according to MetLife’s Ninth Annual Employee Benefits Trends Study, 60 percent of unmarried, full-time workers have no disability insurance to protect their income in the event of a disabling illness or injury.
What’s more, the study suggests that men are less likely than women to perceive a potentially disabling illness or injury as a realistic risk. While 65 per-cent of unmarried working women admitted to being very concerned about their financial security in the event of a disability, only 44 percent of unmarried working men admitted the same. But the risk of a disability during working years is greater than they think— according to a Social Security Fact Sheet, the average 20-year-old is twice as likely to become disabled as to die before age 67.
Income Protection Can Help With Return to Work
Disability income insurance can also help employees return to work faster and lessen the impact of their disability on their professional lives. The disability study found that, in general, workers with disability income protection returned to work three months sooner than those workers without coverage. Employees with coverage were also twice as likely to return to the same employer in the same function as were those with-out coverage.
Two big barriers for people obtaining adequate disability coverage are concern about affordability and deter-mining what is “adequate” for their needs. It can be challenging for people to consider disability insurance when they might be living paycheck to pay-check already. However, it is important to convey that income protection should not be considered a discretionary expense. What happens to the family when the paycheck abruptly stops? When budgets are tight, it still makes sense to buy enough disability insurance to cover the rent or mortgage and keep your family in their home should you become disabled. Disability insurance is more affordable than many think.
For example, a healthy 35-year-old male may obtain a $1,000 monthly benefit for an initial premium of approximately $25 per month. The other reminder to clients is that although some disability insurance is better than no disability insurance—and many might have some base level of coverage through work—a good rule of thumb is to protect 60 to 80 percent of your after-tax income. It is important to offer simple-to-use tools and communications that help people understand what constitutes adequate protection. Finally, it is important that people understand their risk. MetLife’s 9th annual Employee Benefits Trends Study found an interesting gender difference. While 65 percent of single, working primary wage earner women admit to being very concerned about their financial security in the event of a disability or serious illness, only 44 percent of single, working men say the same— seeming to indicate that men perceive a potentially disabling illness or injury as less of a realistic risk. A snapshot of MetLife