Bridging the Gap…Examining Consumers’ Disability Perceptions Can Help You Prepare Them For Reality

Approximately 8.5 million U.S. wage earners are receiving Social Security Disability Insurance (SSDI) benefits, and more than one in four of today’s 20-year-olds are estimated to become disabled before they retire, according to the Social Security Administration.
Despite these startling facts, approximately 100 million workers are without private disability income insurance. However, as continued economic uncertainty heightens the value consumers put on financial security, workers are becoming more conscious about protecting their income. This trend presents an opportunity for brokers to educate employers and their employees about the fundamental role that income replacement options, including disability insurance, play in financial preparedness.
To ensure you provide the best counsel possible, it first is important to understand the current state of disability in the United States, as well as the gap that exists between that reality and consumer perceptions.
Based on the most recent census, more than 36 million Americans—12 percent of the population—are classified as disabled, and more than half of those individuals are in their working years, ages 18 to 64. In addition, as evidenced by an increasing number of individuals receiving payments, disabling incidents are on the rise. In fact, companies participating in the 2011 Council for Disability Awareness (CDA) Long Term Disability Claims Review reported paying $8.3 billion in long term disability insurance claim payments in 2010, which represents an increase when compared to payments made in 2009.
As sobering as these statistics may seem, consumers continue to underestimate their own odds of becoming disabled at just one in 100, assuming that other people are more at risk for disability than they are. Forty-three percent believe that disability is likely at any age for the general population. And, in fact, while the median age range for disabilities is 45 to 53, more than 30 percent of all workers receiving SSDI payments at the end of 2010 were in their 20s, 30s and 40s.
Another reality that is contrary to consumer (and even broker) perceptions is that most disabilities are not caused by on-the-job injuries or freak accidents. While consumers believe injuries account for more than 70 percent of long term disabilities, these injuries collectively make up only 10 percent. Many are surprised to learn that musculoskeletal and connective tissue disorders such as back and neck pain and arthritis are responsible for more than one in every four disability claims, making them the most common cause of disability. Cancer is second, representing 15 percent of all new claims.
Because consumers believe that injuries or accidents cause most disabilities, they often overestimate the duration of a disability—more than 30 percent assume most disabilities are permanent. In reality, the average long term disability claim lasts 31.2 months. Plus, many disabled workers are able to return to work, often with the assistance of vocational rehabilitation services provided by their private disability insurance. During this time of no earnings, however, there is greater likelihood that consumers may sacrifice accumulated wealth or retirement savings, so expediting their return to gainful employment ultimately protects their quality of life.
Considering the reality of a disability, a fact that should be obvious is that income protection is more important than almost any other financial resource in achieving and maintaining fiscal security, continuing to provide for loved ones, and paying bills if one is unable to work. Nevertheless, 90 percent of respondents to the CDA’s 2010 Consumer Disability Awareness Survey said they valued their ability to earn an income, and nearly 40 percent said they have not thought about how they would protect this all-important financial asset.
According to a survey by the American Payroll Association, more than 70 percent of Americans live paycheck to paycheck, and 65 percent of those in the CDA survey said they could pay their bills for less than a year if their income stopped. For most, an income-limiting disability such as debilitating back pain or cancer would very likely result in the rapid depletion of their financial resources.
Exposing another gap between perception and reality, workers indicate that in the absence of an emergency savings account, they will rely on disability insurance, employer-funded sick/vacation time, and a spouse’s or partner’s income. However, sick leave and vacation usually run out in a matter of weeks, so they are only stop-gap solutions to a longer term issue.
These misperceptions have led to approximately 100 million workers not being covered by private disability income insurance. Even when their employer offers long term disability insurance as a voluntary benefit, more than 60 percent of employees do not select it.
Furthermore, as most of you know, SSDI benefits can often take up to three years for approval—two-thirds of all applicants initially are declined by the agency. Once approved, benefits may provide less than adequate protection, as the average monthly SSDI payment is only $1,068. Also, since illness and non-work-related injury causes more than 95 percent of disabilities, the vast majority of employees will be ineligible for workers’ compensation benefits.
Brokers can help bridge these gaps between perception and reality by educating employers and employees of all ages about the potential for disability, as well as how they can protect themselves. The Council for Disability Awareness and some disability insurance providers offer numerous studies, informational resources and communications tools to assist in this effort.
It’s also important for brokers to conduct a comprehensive analysis of each employer’s benefits program to understand all income replacement options—such as paid time off (including sick leave and vacation time), short term disability, long term disability and state disability insurance, if applicable. By considering all of these options from a total income protection perspective, brokers can help employers guard their employees from common pitfalls.
With this type of analysis a broker can assist employer/clients in determining how they can maximize their benefits program and prevent unintended consequences at claim time. For example, many times the income protection options employers provide overlap, which could cost them more than necessary, or their options might leave gaps during which employees would have no coverage.
Over the years, the cost of group disability coverage has also been misperceived. It is surprisingly affordable—particularly on a group basis. This is true even though the cost of long term disability insurance can differ depending on the coverage selected by an employer, from basic coverage for entry-level workers to more comprehensive packages that protect key employees’ incomes, as well as retirement savings and health insurance. In fact, the average group long term disability premium is about $240 per employee each year. This is a relatively small price to pay to protect one’s ability to earn an income.
For more information about the potential for disability and its financial impact, please visit http://www.disabilitycanhappen.org or contact your disability insurance provider.

 

By Scott Horstman for March 2012 issue of Broker World Magazine. Author’s Bio Scott  Horstman is a product manager with Assurant Employee Benefits, a provider of employer- and employee-paid benefits, including disability, life, dental and vision insurance, as well as worksite products.

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