KANSAS CITY, Mo., Feb. 28 /PRNewswire/ -- Most
Americans are not prepared to deal with the possibility of becoming
disabled and, in turn, unable to work, according to new research by the
National Association of Insurance Commissioners (NAIC). More than half
(56 percent) of U.S. adults say they would be unable to pay their bills
or meet expenses if they became disabled and could not work for a year or
longer, according to a January NAIC national consumer survey fielded by
International Communications Research.
The survey showed consumers have an optimistic picture of
their future, with only 13 percent saying it was somewhat or very likely
they would become disabled and unable to work. However, data from the
Social Security Administration (SSA) indicates that a substantial portion
of the nation's population -- 20 percent -- will actually become disabled
for a year or more before reaching age 65.
These findings highlight the need for long-term disability
insurance, designed to protect people financially by replacing some of
their lost income. In the NAIC survey, only 44 percent of respondents
indicated they had long- term disability coverage. Of these individuals,
71 percent said their long- term disability insurance was employer
provided rather than individually purchased. This suggests a significant
number of people could lose their coverage in the event of a change in
"Many people don't think about the impact becoming
disabled can have on their ability to earn a living and remain
financially independent," said Walter Bell, NAIC President and
Alabama Insurance Commissioner. "Understanding the role of
disability insurance at each life stage is critically important to one's
total financial security."
The Basics: What All Consumers Should Know About Disability
For insurance purposes, disability is typically defined as
the inability to work due to an illness or injury, although the
definition varies among different insurance companies and policies.
There are two main types of disability insurance: short-term
and long- term.
Short-term disability insurance, which some states require
employers to carry for their employees, replaces a portion of the
policyholder's salary for a short-period -- typically from three to six
months following a disability. The specific percentage of replaced income
varies with different policies.
Long-term disability insurance coverage typically begins
after the policyholder is disabled and unable to work for at least six
months. The coverage period can extend for a specific number of years or
until the policyholder retires or turns 65, depending on the policy
selected and the type of disability. Though policies can be costly, being
disabled for a long period of time can be financially devastating.
According to research by the U.S. Department of Education and the
National Institute on Disability and Rehabilitation, the most common
causes of long-term disability are heart disease, back injuries and
cancer, followed by anxiety and depression. In 2005, about a third of
disabled worker beneficiaries had been diagnosed with a mental disorder,
according to the SSA.
Consumers should not confuse disability insurance with
workers' compensation -- a benefit that employers are required to carry
in most states for employees who are injured on the job.
The NAIC offers the following tips to consumers considering
disability insurance: * Determine how much money you'll need to cover all
of your critical expenses (such as mortgage payments/rent, food,
utilities and transportation) should you become disabled. Unless your
investments and savings can maintain your current lifestyle for several
years, you may want to consider purchasing long-term disability
insurance, which typically covers about 60 percent of your previous
income. The percentage varies depending on the policy you select. Also,
you'll need to decide how long you want benefits to last. * Be aware that
having a pre-existing health condition, such as a back problem or heart
ailment, coupled with your age, could affect whether you'll qualify for
long-term disability insurance and at what cost. You may be subject to a
higher premium or be "excluded" completely from purchasing a
policy based on your medical history. * Typically, younger, healthier
individuals pay lower disability premiums. If you purchase disability
insurance at a young age and can get a "non- cancelable"
policy, your coverage can't be cancelled and the premiums can't be raised
once your medical exam has been approved and your policy issued, assuming
your premiums are paid on time. * While a "guaranteed
renewable" policy can't be cancelled, its premiums may be increased
on the anniversary of the policy or when stated in the policy. * Most
long-term disability insurance stipulates a waiting period, such as 90
days, 180 days or one year before benefits are paid. The longer the
waiting period you select, the lower the premium. * If you have
disability insurance and become disabled, you'll need to fill out a claim
form. Keep in mind that many insurance companies will require supporting
documentation from physicians to verify whether and to what extent you
are disabled, before paying out on a claim. * Find out if your employer
offers a group short-term and/or long-term disability plan. Typically,
premiums from group plans are less expensive than individual policies.
Also explore whether you can convert group disability coverage from your
previous employer to an individual policy should you change jobs.
The federal government does offer long-term disability
benefits through the SSA under the following specific circumstances:
" ... if you cannot do work that you did before and we decide that
you cannot adjust to other work because of your medical condition(s).
Your disability must also last or be expected to last for at least one
year or to result in death."
Disability Insurance Tips for Each Life Stage Following are
some considerations for consumers based on their likely needs in
different life stages. * Young singles: A 20-year-old worker has a 30
percent chance of becoming disabled before reaching retirement age,
according to the SSA. Young people who suddenly can't work due to an
accident or sickness still will be responsible for paying their bills. *
Young families who rely on both spouses' incomes should consider
purchasing long-term disability insurance for both. At this life stage,
families typically have many expenses, including a mortgage and child
care. * Established families may also want to consider purchasing
disability insurance. In addition to their regular expenses, established
families are likely trying to put away a portion of their income to pay
for their kids' college tuition, as well as save for retirement. Becoming
disabled for a lengthy period can greatly interfere with these savings
plans. * Empty nesters/seniors who are still employed may want to keep
their disability insurance in force until they turn 65 or retire.
"Before purchasing any disability policy, consumers
should check with their state insurance department to make sure the
company offering the coverage is legitimate, solvent and authorized to do
business in their state," said Catherine J. Weatherford, NAIC
Executive Vice President and CEO.
ABOUT THE NAIC
National Association of Insurance Commissioners