Top 10 Disability Income Insurance Misconceptions
A long-term disability can be one of the most devastating threats to a family's financial security. An illness or injury can start a downward spiral that may be difficult to recover from. Yet most of the young people we meet with – and many older individuals as well – don't understand the risk of becoming disabled, haven't thought about the implications and don't know there are ways to help protect against the effects of long-term disability. Educate yourself about the myths and misconceptions.
Myth 1. Most Disabilities Occur Because of Injuries Resulting from Accidents.
When asking people what they know about disabilities and/or disability insurance, about 50 percent of the answers from people under 40 are something similar to: "That would cover me if I got in a car accident or got hit by a bus, right?" Yes, it would. The primary cause of disability is chronic disease – musculoskeletal problems, cancer and mental disorders are leading diagnoses – rather than work-related mishaps or non-workplace accidents.1
Myth 2. "I'm in Good Health, So Nothing Will Happen to Me."
Cancer, stroke, neurological disorders and other illnesses and accidents don't dodge people who take good care of themselves. Disability can happen to anyone, no matter how careful they are or how well they practice preventive care.
Myth 3. "I'm Too Young to Worry About Disability Income Insurance."
Just over 1 in 4 of today's 20-year-olds will become disabled before reaching age 67.2 Accidents and illnesses affect people of all ages. Disability income insurance underwriting is extremely tough, and many people aren't able to get it when they want it. Premiums are usually less expensive when you're young and healthy, and many contracts come with premiums that are guaranteed to never go up.
Myth 4. Most Long-Term Disabilities Are Permanent.
While many people think of paralysis or other lasting catastrophic ailments when they think about disabilities, most disabilities are temporary. You may be completely out of work for a period of time, but modern medicine has enabled more people to return to work on a part- or full-time basis. If you aren't earning the income you were earning prior to the disability, many disability income insurance contracts will pay you a portion of your benefit for an extended period (possibly as long as the full benefit period). This may be available via a rider at an additional cost.
Myth 5. "I Could Do My Job from My Hospital Bed."
Have you ever have the flu? Any chance you were going to work? Did you feel like doing a lot of work from home? Now imagine having a serious illness. Wouldn't you want to put all of your energy into getting better and not have to worry about feeding your family or paying the mortgage?
Myth 6. "I'm Covered Through My Group Disability Income Insurance Policy Offered Through My Company."
Even if you do have coverage, it may not adequately protect your income. Most group disability income insurance contracts cover a portion of your salary — typically around 60 percent. Many group policies only cover base salary, and the benefits are taxable (if the employers pay for the coverage). Furthermore, group contracts don't come with inflation protection and are rarely portable. For those who do have group coverage, it often makes sense to max this out and then buy individual coverage to supplement the gaps.
Myth 7. "My Spouse Works or Could Go Back to Work If I Couldn't."
If you were disabled, do you think you'd want your spouse to go back to work, or might they want to help care for you? Our experience shows that during times of serious disability, both spouses often end up living off the disabled one's insurance benefit (even if the other spouse was working before the disability).
Myth 8. "I Should Protect Enough to Cover My Expenses."
Disability insurance only protects a portion of your income, not all of your assets. People insure most other assets, such as cars and homes, for 100 percent of their value. Why should your income be any less protected? Covering only current costs doesn't account for potentially higher expenses while disabled (paying your own health insurance and/or paying medical bills not covered by health insurance). It also doesn't account for inflation or a natural increase in expenses that typically occurs as children get older. Lastly, without contributions to a retirement plan, you may not have enough money built up when the benefit period ends (typically at 65 years old).
Myth 9. "I Have Savings to Cover Me If I Couldn't Work."
How long would the savings last if you couldn't earn an income? Most people wouldn't starve if they were disabled for a few years, but the impact of digging into savings and investments would have a huge impact on the number of years they were planning to work — or the amount they had accumulated at retirement. For example, if a 40-year-old spends $300,000 of their savings while disabled, and if that money would have otherwise earned an 8 percent return, that's over $2 million of lost wealth at 65 years old. At age 85, that sum would have been almost $10 million.
Myth 10. "The Insurance Companies Won't Pay Me Anyway."
Most disabilities are more clear-cut than people think. Being with a strong carrier on a good contract is important. And you'll want to check into the claims-paying history and ability of the companies offering these policies when you're making your decision.
The Bottom Line
The ability to earn an income is everyones most valuable assets. Everything in life rests on the ability to earn an income — home, cars, lifestyle, the education of your children, savings and retirement. If this ability is suddenly taken away by a disabling sickness or injury, the potential loss could be overwhelming. Contact your ShawHankins benefits consultant for any questions you may have.