Why Waiting to Buy Income Protection Can Cost You Big Time

Couple sitting at a laptop.Like many others in their 20s, I remember not being thrilled about the chunk of income that was taken every month by insurance. It always seemed like money that was going out and would never come back in and felt especially significant at a time when my income was low.

The temptation was always to either skimp on insurance, wait until my income increased, or bypass it altogether. The same holds true for many people today when it comes to income protection, an insurance policy that replaces your income if you are unable to work due to an accident or sickness. While the reluctance to spend more on insurable is understandable, it’s important to take the time to discuss the cost of waiting to purchase this important coverage.

Here are the three major costs to be aware of:

Cost 1: You’re most insurable when you’re young

When you are young, you are generally in the best health of your life. As you get older, nagging injuries and health issues tend to pop up. This can affect the policy terms of your disability insurance (DI) policy. The older you get when applying for DI coverage, the more likely it is that your policy will include restrictions like exclusions, ratings, and even being declined altogether.

For example, if you have a serious back issue, the insurance company may offer a policy with a back exclusion meaning that they would not pay out benefits if you were unable to work due to an issue with your back. Or, if you have a history of heart issues, the insurance company may include a modification like adding extra premium to cover their extra risk. Of our office’s current issued policies that were issued medically as applied for (no medical exclusions or modifications), 67 percent were under the age of 40! The time to get coverage is when you are young and at your most insurable. Many carriers will also allow you to purchase increase options which means you will be able to increase your coverage in the future to keep pace with your income but not have to complete any medical underwriting.

Cost 2: Premiums increase

The premium cost for coverage goes up as you get older. In addition to health considerations that may increase your premium, the cost for coverage is also based on age.

The chart below shows premiums of different occupations at age 25 and age 40—note there’s up to a 70 percent increase in premium from age 25 to age 40. If the 40 year old dentist purchases coverage and keeps it inforce until age 66, he will still end up paying out more total in premium than if he purchased coverage at age 25. He also misses out on 15 years of income protection.

Male Rates  Dentist College Professor Pediatrician Executive
Annual premium at age 25* $1,198.40 $1,000.30 $880.95 $704.55
Annual premium at age 40* $2,013.20 $1,704.50 $1,477.35 $1,181.60
Percentage Increase 68% 70% 67% 68%

 

Female Rates  Dentist College Professor Pediatrician Executive
Annual premium at age 25* $2,053.45 $1,637.65 $1,399.30 $1,119.65
Annual premium at age 40* $3,326.05 $2,789.85 $2,382.45 $1,906.10
Percentage Increase 62% 70% 70% 70%

*Premiums shown are for illustrations done for $3500/mo of benefit, with typical options including noncancellable (premiums cannot be changed), residual (return to work benefits), 3% COLA (inflation protection), 90 day wait, benefits paid to age 65, KS resident.

Cost 3: Peace of mind

While we tend to think we are invincible while we are young, the truth is that disabilities can happen to anyone at any age. The Council for Disability Report in 2014 shows that ages 40 and under filed 21 percent of all disability claims in 2013.

Know that there are ways to address the very real concerns about fitting the cost of income protection into your budget. There are a lot of options to keep the coverage affordable including multi-life discounts, business owner discounts, or simply making changes to the amount of monthly benefit or benefit duration. Many people start with a minimal benefit amount and include a rider called an increase option so they can increase their benefits as their income grows regardless of their medical insurability.

For more information about the importance of income protection and the risk of disability, visit www.RealityCheckup.org.




Why Disability Insurance Matters

Person with broken arm typing on laptop.This article originally appeared in Human Resource Executive. 

Throughout my career, I have usually been the interviewer, but occasionally I’ve also been the interviewee. Whichever side of the table I have sat on over the past three decades, my least favorite question is always: What keeps you up at night?

I spent the early part of my career in healthcare, first working with Olympic and elite athletes, obese children, pregnant and post-natal women and the apparently well general community; and then running industrial medicine programs. The only thing that keeps me up at night from either a work or personal standpoint is if someone is hurt, suffering or dead on my watch. That’s the gift working in healthcare gives you—lifelong perspective.

So, for me, the sleepless night query is a lazy question. It’s generally code for something along the lines of: “What big problem are you working on?” or “What do you believe is the most challenging issue for employers today?”

Neither of those questions, however, stimulates me to give the interesting answer the person is seeking. But this one does: What distracts you during the day?

When I am trying to solve a problem for which there is no easy solution, almost everything I read or hear causes me to consider how that information might relate to my problem.

Whether working in healthcare, for an insurance company, consulting with employers or running a nonprofit, the basic and vexing problem I’m trying to solve is behavior change and how, ultimately, human beings evaluate and respond to risk.

Here’s what I’ve learned. Essentially, we’re baked and done at approximately 18 years of age. Around that time, your body executes an efficiency review. Any neural pathways your brain hasn’t used are trimmed away. (Note: We have also learned, however, that if you need a pathway back after something traumatic such as a stroke happens, it can regrow with dedicated rehabilitation.)

What is the impact of this spring cleaning of the brain? The person you were as an 18-year-old is, in some ways, your setpoint. If you exercised, ate seven to 10 fruits and vegetables a day, were the right weight for your height, didn’t smoke, didn’t drink more than one alcoholic beverage a day, always wore a seatbelt, saved money for a rainy day, did the healthcare and dental visits recommended for someone your age, etc., you’re set up for a reasonably good physical and fiscal life. Even if you stray from these behaviors due to changing life circumstances, it is easier to get back to these habits because the neural framework is there to support you.

But if your 18-year-old self had some room for improvement, you can undergo changes as you become older and wiser. It will be simply more difficult for you to execute, since you will be working against your neural wiring.

So what does this background have to do with employee benefits?

The longer I work in and around employee benefits, the more I’ve come to appreciate that there are enormous advantages to health- and financial-benefit programs that either a nation or an employer selected and paid for.

Unfortunately, most adults evaluate hazards differently than risk-considering people like me, HR executives or actuaries.

When Texas cattle producers sued Oprah Winfrey for creating “a lynch-mob mentality” among viewers during a 1998 episode on beef safety at the time of the mad-cow-disease scare, a risk-communications consultant named Peter Sandman described a formula for how people evaluate risk: Risk = Hazard + Outrage. Sandman wrote (bracketed words are mine):

“To the experts, risk means expected annual mortality [or financial ruin]. But to the public (and even the experts when they go home at night), risk means much more than that. Let’s redefine terms. Call the death rate (what [many] experts mean by risk) “hazard.” Call all the other factors, collectively, “outrage.” Risk, then, is the sum of hazard and outrage. The public pays too little attention to hazard; the experts pay absolutely no attention to outrage. Not surprisingly, they rank risks differently.”

During and following World War II, when most developed nations chose to provide its residents with healthcare and financial benefits, they unconsciously acknowledged our frailty as humans in evaluating risk.

On Jan. 11, 1944, President Franklin Delano Roosevelt attempted to persuade Congress and the nation of the value of a “second bill of rights” (also known as an economic bill of rights) during his State of the Union address. Included on the list were the right to adequate medical care—and the opportunity to achieve and enjoy good health—and the right to adequate protection from the economic fears of old age, sickness, accident and unemployment. Several of FDR’s rights were addressed in programs such as Social Security. But employers continued to bear some of the onus they picked up during World War II by not abandoning employee benefits such as healthcare coverage.

As employee-benefits costs—led by healthcare expenses and poor pension investments—began to incur precipitous financial consequences for businesses during the 20th century, employers began the shift to cost-sharing with employees. (It’s a trend that continues today.) The advent of this change, coupled with the rise of cafeteria plans, put workers in the risk-assessment driver’s seat. They often made selections that make me shudder.

The latest information that has me losing some proverbial sleep at night is this: An analysis of economic research by a New York Times reporter that showed a trip to the hospital can mean a permanent reduction in income for a substantial fraction of Americans. Some people bounce right back, but many never work as much again.

To read the rest of this post, please click here.




Educating Employees About Disability Insurance? Ask Them 5 Questions

HR leader educating a group of employees.Employers are offering more and more voluntary benefits—and workers want these benefits. A 2017 study showed that nearly one third of eligible employees were signing up for voluntary offerings (that’s a higher participation rate than in earlier years). 

Amy Hollis is the national leader of voluntary benefits for HR consultancy Willis Towers Watson. She recently spoke to Workforce about their recent survey. It shows that 70 percent of employers claim voluntary benefits will be an important part of their value proposition in coming years. “Companies are using voluntary benefits to enrich their offerings without additional cost,” she said.

While there is a win-win element to this—it’s a good economic choice for both employers and employees—the story finishes with a stark warning. Rob Shestack, chairman and CEO of the Voluntary Benefits Association in Philadelphia says that HR teams need to be ready to educate. “The most frustrating thing is when HR makes the effort to provide these programs then does passive enrollment,” he says. “It’s like saying you don’t care if people use them or not.”

When it comes to disability insurance, education is that much more important. James Reid of CDA member company MetLife argues something similar in a story in Benefit News:While employees have a general idea of the benefits they use most often (medical, dental or vision), they don’t always grasp the value or need for some of the other benefits which may be available to them (disability or accident insurance, for example).”

Disability insurance is one of the most critical forms of coverage for working Americans—and one of most overlooked. Part of the problem is that people simply don’t understand how relevant it is for modern life

Here are five questions you can ask as a framework for understanding what disability insurance is: 

1. What does disability mean in this context?

Many people hear the word disability and assume it only means catastrophic health issues. In fact, disability can refer to a broken leg from a skiing accident, a pulled back while cleaning out your garage, a cancer diagnosis, or a pregnancy that can put an employee out of work for days, weeks, or months at a time.

Share the five most common reasons that keep people out of work for long periods: Pain in the back and neck, cancer, complications from pregnancy, and mental health issues all rank before accidental injuries, which many assume is the leading cause of disability. You can also share infographics.

2. What are the statistical chances of becoming disabled?

Eighty percent of us live with optimism bias. That’s to say we don’t have a realistic understanding of the risk of becoming ill or injured. This is particularly at work with the younger generations who have grown up with some of the most supportive parents in modern history.

These are the numbers: According to the Social Security Administration, more than one in four of today’s 20-year-olds will be out of work for a year or more for a variety of reasons before they reach normal retirement age. This includes common health conditions such as knee, shoulder, or back injuries, cancer, heart problems, or depression.

Add to that the fact that nearly six percent of workers every year will experience a short-term disability due to illness, injury, or pregnancy. Three quarters of these claims last up to two and a half months, and the rest can last for up to six months or a year.

3. How would you pay your bills?

Ask rhetorical questions as you educate: Will an employee be able to pay their mortgage, phone bill or contribute to their health insurance or retirement plans should a pregnancy, illness, or injury take them out of work for a few days, weeks, or more? This is about laying the foundations for their long-term financial stability.  

Data from the Federal Reserve shows that 40 percent of Americans do not have enough savings to pay for an unexpected $400 bill. Disability insurance pays a portion of someone’s salary when they need to miss work due to an illness, injury, or having a baby. For those who are single, disability insurance is the second most important insurance they can carry after health insurance. And if employees have a family that depends upon them, this insurance gives them an income stream if they need to leave work.

4. What does Workers’ Comp and SSDI cover?

Employees need a realistic understanding of the various safety nets that are in place should they become ill or injured—so they can make an informed decision:

  • Workers’ Compensation: Workers’ Comp only applies to accidents done on the worksite. Disabling illnesses or injuries are much more likely to be non-occupational in origin, which would rule out that coverage.
  • Social Security Disability Insurance (SSDI): The Social Security Administration provides Social Security disability benefits for eligible individuals who have a disability that lasts for one year or longer. Many applicants are denied due to a lack of work history, lack of medical evidence, the temporary nature of their condition, or the fact that people may still be able to work outside of their profession. There are three important things to bear in mind: 1) workers who become disabled off-the-job won’t always qualify for SSDI, 2) they can face average wait times of 600 days for a hearing (that’s nearly two years), and 3) if they do eventually get benefits, the monthly amount (averaging around $1,200, based on the most recent data) probably isn’t enough to help them keep up with their ongoing expenses.  

5. If you want to start a family—what is your financial plan for maternity leave?

If your company doesn’t offer paid maternity leave, this is an important point to raise with women in the workforce. Disability insurance is a critical benefit for many new mothers in the U.S. Indeed, pregnancy is the most common cause of short-term disability (STD) claims. Plans typically cover two weeks before and six weeks after a routine pregnancy. 

Here’s an important note: One of the major differences between pregnancy and other types of disability claims is predictability. For a healthy woman, purchasing coverage through their workplace in anticipation of a planned pregnancy can be a fairly easy transaction. The key is that they buy coverage before they become pregnant. This way there is little risk of underwriting issues or denial of their claim due to a pre-existing condition limitation. (Read more on this here.)

By asking these questions, you can broaden the minds of your employees and give them the larger context of how disability insurance works in real life. That way, it isn’t just vague words on a list in a company intranet.  

To learn more about disability insurance, or to offer your colleagues further reading, guide them to our new consumer microsite: RealityCheckup.org  




How Can I Get Disability Insurance?

Image of a man with the question: How can I get disability insurance?Disability insurance is one of the most important forms of insurance for working Americans. The financial expert Dave Ramsey calls it “a necessity.” It has been described as a valuable benefit by NPR while NBC News calls it “more important for singles than just about anyone.”

Having a form of income protection for when you’re injured, ill or pregnant is part of a solid financial plan. But how do you go about actually getting a policy? 

Here are your next steps:

1. Talk to your employer

If you have a full-time job, you may already have access to private disability insurance. According to the Bureau of Labor Statistics, at least half of U.S. non-government employees have disability insurance. So start by talking to your HR manager. 

Here are a few things you can ask:

  • If they offer disability insurance, is it employer-paid, employee-paid, or a combination of the two? The general rule is, if your employer pays some or all of the premium, then some or all of any benefits you collect will be taxable to you. Your employer may offer a voluntary plan where you will need to pay the entire premium. However, it grants you access to better rates — and any benefits you collect will not be taxed. Ask how much it costs and how you can sign up for it.
  • What is the benefit amount for the policy? It won’t be your full salary, as your employer wants some incentive for you to return to the job. Policies generally range from 40 to 70 percent of your salary.
  • How long will my payments last? A policy will indicate the maximum length of time that benefits will last. Long-term disability insurance may cover anywhere between two years through retirement age.
  • When will payments begin? This will depend on whether it’s short-term or long-term disability insurance. Both types of coverage include waiting periods. A waiting period is the time between when you leave work to have your baby or you are diagnosed with a condition that prevents you from working, and when payments begin.
  • What is the policy’s definition of disability? The definition of disability varies among policies and carriers. Some consider it related to you not being able to perform the duties of your specific job while others take into account your training and experience. You may carry a policy that pays you if you can’t perform your “own job,” “own occupation,” or “any occupation” that reasonably matches your knowledge, training and experience.
  • If you don’t have access to disability insurance at work: Ask why not. You could ask whether they would consider starting a voluntary policy for employees.

2. Talk to your financial advisor

If you aren’t currently offered disability insurance at work, or the amount they are offering won’t cover your basic living costs, consider purchasing individual insurance.

Your financial advisor or insurance agent will be able to help you identify the amount you need, the most suitable amount of time you’d want to receive payments, and which plan makes the most sense for your unique needs.

If you’re self-employed or a business owner, this is definitely something you should consider. (More on that here.)

3. Talk to associations

You can also access more affordable rates for disability insurance through a plan offered to members of a professional society — for example, the American Institute of Certified Public Accountants or the Freelancer’s Union — or a college alumni association. If you’re already a member of such an association, ask about their disability insurance offerings. 

4. Visit RealityCheckup.org

In the spring of 2018, The Council for Disability Awareness launched a new consumer microsite that unpacks what disability insurance is, why you need it, and how to get it. Visit the site to learn the language associated with various policies, and find useful links. You can also listen to CDA experts discussing the topic on radio talk shows.

5. Talk to our member companies

The member companies of The Council for Disability Awareness formed this nonprofit organization solely to educate consumers, employers, and financial advisors about working adults’ risk to be out of work for a period of time without a paycheck. View the member organizations here.

6. Lock in your coverage

The thing about accidents, illness and injury, is that you have no idea when they will happen. So this is the sort of policy you’ll want to lock in sooner rather than later. Bear in mind that like life insurance, your rates will also be cheaper the younger you are. By securing a policy now, you can relax knowing that a safety net is in place. 




Cancer and the Healing Power of Community (Video)

Portrait of Lisa Gohra and Dave BurkeIt started with what seemed to be a sinus infection. “But it just wouldn’t go away,” remembers Lisa Gohra. So she went to see her doctor.

He put her through a series of tests: ultrasounds, chest X-rays, CAT scans, needle biopsies. Then the diagnosis arrived: Advanced Papillary Thyroid Cancer with a tall cell variant. The variant made an otherwise treatable cancer very aggressive.

In a moving video that the American Cancer Society created this spring (watch below), Lisa Gohra discusses how she was able to move through her journey into cancer. She was diagnosed with a metastatic form of the disease, which meant it had spread to other parts of her body. And it was stage four.

She says her recovery — and coming to terms with living with an incurable form of cancer — came down to a decision to focus on the kindness of the community supporting her.

Gratitude as an anchor

Lisa underwent two lengthy surgeries to remove a nine centimeter tumor that had invaded her thyroid, as well as more than 70 cervical lymph nodes and tissues within her neck, trachea and vocal cords. She received inpatient care at Brigham Women’s Hospital with outpatient care at the Dana-Farber Cancer Institute in Boston. In the video, Lisa explains how she made a conscious decision to focus on gratitude for her team of doctors led by Dr. Tom Thomas — and that became her mental anchor.

Then came the kindness of the Hope Lodge in Boston. Following her surgeries, Lisa had to go through nine weeks of specialized care and radiation treatment, five days a week. Considering her home was 90 miles away in West Springfield, Western Massachusetts, the only way she and her husband Dave could have made it to the treatments would have been to move into a hotel in Boston.

The AstraZeneca Hope Lodge stepped in to help. Hope Lodge is run by the American Cancer Society and provides a free home away from home for cancer patients and caregivers who need to visit Boston area hospitals for their treatment. It’s one of more than 30 centers around the country that provide this remarkable form of support for free.

The key role of the caregiver

As Lisa moved through this disorienting and deeply painful time, her husband Dave Burke was the stable force, the caregiver, and chief cheerleader. He, of course, still needed to work a full time job. Both Lisa and Dave work for MassMutual, a founding and current member company of The Council for Disability Awareness, and this is where the next form of kindness appeared.

“My company was so supportive of us,” explains Dave. “When I told them, they came and sought me out in person and said, ‘Tell us what’s going on. What do you need, and what can we do to make your life easier?’

“I said, you know what? I’m going to need some flexibility with my work arrangement. I may need to work remote for a couple of months so I can be with Lisa and have time for our family,” Dave pauses and adds: “That was such a weight taken off my shoulders.”

The value of disability insurance

Dave spent more than two months working remotely in their room in Hope Lodge. He spends his days working at MassMutual supporting its disability income insurance business, and says he had a profound insight into just how powerful this form of insurance is when he and Lisa actually needed it themselves.

Lisa’s group disability insurance kicked in soon after she left work, and she also had an individual disability income insurance policy that supplemented her income. This meant she received a substantial amount of her income throughout her time off work. “Because we had the insurance in place, all Lisa had to do was focus on getting better,” explains Dave. “The bills got paid.”

According to data from the Integrated Benefits Institute, cancer is the second most common reason for long-term disability claims. Yet while staying at the Hope Lodge, Dave says he became aware of just how many families didn’t have disability income insurance coverage — and how the lack of such a financial safety net was creating considerable amounts of stress.

“About 90 percent of the families I talked to didn’t have it,” he says. “I would talk to people there and the biggest thing that I think hurt them in their recovery was when they had that financial stress. There were so many people saying things like, ‘I need to get better soon because I’m going to lose my house’, or ‘I’m going to lose my job with my health insurance.’”

Giving back

Lisa has now returned to work full time but she and Dave are continuing their practice of gratitude. Every few months, they load up their car with boxes of food and drink, and drive back to Boston’s Hope Lodge to bring donations to the families still living there.

“I don’t ever want to forget what I was given,” says Dave. “I never wanted to forget that there were people there for me in my toughest time.”

To make a donation to Boston’s Hope Lodge, you can click here. To learn more about disability insurance and how it works, visit RealityCheckup.org




How Does Disability Insurance Actually Work?

Picture of woman with words: How does disability insurance actually work?Disability insurance provides critical financial protection that is very different from other insurance products. Millions of working Americans don’t have it, and many don’t fully understand what it protects.

A 2017 report from LIMRA revealed that 65 percent of respondents thought that most people need disability insurance. Yet only 48 percent thought they personally needed it, and a mere 20 percent said they actually had it. Why the disconnect? 

According to the Social Security Administration, more than one in four of today’s 20-year-olds will be out of work for 12 months or more for a variety of reasons before they reach normal retirement age. None of us like to think about this risk, but it’s a very real one.  

What is disability insurance?

Disability insurance pays you a portion of your salary when you need to miss work due to an illness, injury, or having a baby. If you are single, disability insurance is the second most important insurance you can carry after health insurance. And if you have a family that depends upon you, this insurance gives you an income stream if you need to leave work.

Approximately half of U.S. workers in private industry have disability coverage included in their employee benefits, with at least part of the cost paid for by their employer. The other half can purchase coverage on an individual basis or through a voluntary benefits plan in the workplace. 

Here are the various types of disability insurance and how they work:

Short-term disability (STD)

Short-term plans usually protect your income for between three days and six months — although some policies offer coverage for up to two years. STD plans typically replace between 60 and 70 percent of your pay, depending on the policy.

When you choose a plan, be aware of the waiting period, also known as the elimination period. This is the time between you being diagnosed with an illness, injury or having a baby, and the payments kicking in.

Long-term disability (LTD)

Long-term disability insurance protects your income if you need to miss work for longer than three to six months. It usually covers 40 to 70 percent of your income. The time your coverage pays benefits will range depending on your policy. It can be for a specific period — ranging from two to five or ten years — or until your Social Security retirement age.

The waiting period for most LTD policies is three or six months — so you’ll need a plan to cover costs before the payments begin (usually this time is covered by your STD plan or your savings.) If your employer pays your STD or LTD premiums, your benefits are taxed.

Types of plans

STD and LTD are typically offered in three ways:

  1. Employer-paid plans: These are paid for entirely by your employer.
  2. Worksite or voluntary plans: As the employee, you pay the premium. However you can tap into more affordable rates this way. You can also take these policies with you when you change jobs.
  3. Individual plans: These are purchased to give you the best possible income insurance, or to a supplement a plan you already have through your job or via a membership organization such as the National Education Association (if you work in education). If you collect benefits under an individual plan, your income is tax-free so your monthly payments will be that much higher. To learn more about individual disability insurance, speak to your financial advisor, check out Policygenius.com* or talk to one of the member companies of The CDA.

Social security disability insurance (SSDI)

The Social Security Administration provides Social Security disability benefits for eligible individuals who have a disability that lasts for one year or longer. Many applicants are denied due to a lack of work history, lack of medical evidence, the temporary nature of their condition, or the fact that people may still be able to work outside of their profession.

The average SSDI benefit in January 2018 was $1,197 a month. It generally takes three to five months from time of application to get an initial decision. Approximately one third of claimants are approved: 20 to 25 percent at the initial application stage, and the remainder after a reconsideration or appeals process. In 2017, there was a backlog of more than a million appeals cases, and the associated processing time averaged 18 months.

How much protection do I need?

Start by assessing your income and expenses. How much cash would you need to cover your basic daily living costs like the mortgage, groceries, car payments, student loan debts, and so on? Most people are advised to cover 60 percent of their normal income. Next, how long you could go without a paycheck? Do you have enough savings to cover you for three months? Use our calculator to figure out your costs and use our Personal Financial Security Plan to build your strategy.

To learn more about disability insurance and the steps you can take to discuss it with HR at your workplace or find a plan as an individual, visit www.RealityCheckup.org. *The CDA is an affiliate of Policygenius.




What to Do Now to Prepare for a Smooth Maternity Leave

Mother with her newborn baby.

Has the latest mommy blog replaced the Wall Street Journal as your go-to online reading? Congratulations! There’s no more exciting time than when you’re expecting a baby. But, along with the anticipation comes some worry — about your baby’s health of course, but also smaller things, like will you ever learn how that car seat works (yes); will you ever get a shower again (yes); and…how can you prepare for a smooth maternity leave? We can’t really help you with the first two, except to assure you that you’ll be fine, but here are some pointers to help with the third.

Check on your insurance coverage.

Now’s the time to find out exactly what your benefits are, from confirming what hospitals and services are covered to making sure baby is added to your policy.

Check your company’s maternity leave policy to see what coverage you have, which could fall under paid or unpaid family leave or short-term disability coverage. Yes, believe it or not, pregnancy is included as a disability — in fact, it’s the No. 1 cause of short-term disability claims.

Short-term plans typically cover you from the date your physician tells you to stop working before delivery (this can vary based on your particular situation) until six to eight weeks after delivery, depending on plan specifics. And there usually will be a short “elimination period” before benefits are payable. In the event you have pre- or post-partum complications and your doctor determines it’s best for you to be out of work longer, your short-term plan will usually cover the additional time — up to what’s called the “maximum payable period” or MPP for the plan (usually six months, although it can be as short as three months). Anything beyond the MPP would have to be covered by your long-term plan — if you have one.

To get short- or long-term disability coverage through your employer, you may have to sign up for it either when you first become eligible for benefits or during the annual open enrollment period. Keep in mind that you need to sign up for it before you become pregnant. And once you’ve got it, remember that other, unexpected, health events could keep you from working in the future, so it’s to your advantage to maintain continuous coverage (more on that here.)

Line up daycare.

In some areas, it can seem as tricky to get into a top-flight daycare center as to get into the college of your choice. The time to get on the waiting list is the minute you know you need to

Of course, there are numerous childcare options, from nannies to nanny shares to family members, so take the time to talk through the pros and cons and find the one that best suits your familial and financial situation. In addition to giving you peace of mind, having your daycare situation handled presents the solid message to your workplace that you are indeed intending to return. 

Tell your boss before social media.

Even if you’re not “friends” with your boss, social media news travels incredibly fast and your manager might not appreciate finding out your exciting news after your Twitter followers and Facebook friends do. 

Of course you’re going to break the news to family and IRL friends, but offer your boss the courtesy of letting her or him know before you post to the wider world online. Hopefully they will be happy for you, but remember, this might cause your manager some anxiety, too, so don’t be offended if the first reaction isn’t what you’d hoped for. 

Develop a plan.

You might use the first meeting to assure them that you’ve got your leave handled, but press for a separate meeting to go over the details. You’ll want to give them a chance to get over their shock and get some questions ready. 

Create a plan that includes as many details as you can about your planned leave and return, such as important upcoming events like client reviews or sales meetings, along with a preliminary idea of how you see those duties being handled. Naturally you can’t anticipate everything that might arise, but an initial plan will give your manager the added confidence that nothing is going to fall through the cracks. 

Document everything.

When you think about it, a lot of what we do every day is just second nature. Reports go to this client this day. That client prefers invoices in this format. You always give an end-of-week sales update to this person.

As you prep for your leave, look at the cadence of your days, weeks, and even months and figure out what types of details you can leave that will make the break seamless for your clients and your “replacement,” whether that’s one person or several dividing up duties. 

Then develop a “cheat sheet” that shows what dates each day or month certain activities should happen, and include a template, if possible, for agendas, reports, proposals and the like. The more your team knows, the smoother your leave — and your eventual return — will be. 

Don’t commit to too much availability until you know.

You might think you’ll be totally into a Monday morning sales call, until you spend all Sunday night soothing a fussy newborn. Beware of biting off more than you can (or want!) to chew and give the office some very loose guidelines, such as that you’ll check email once a week and respond to anything crucial, or if someone texts you with an urgent manner, you’ll respond as soon as you are able. 

Make sure your email and voicemail messages steer correspondents to other resources to avoid too many questions or issues, and then plan to play it by ear to determine what works best for you and baby. You may find that it’s a nice respite from “Goodnight Moon” to talk marketing, or you might want nothing to do with the office update. 

But above all else, enjoy every minute with your newborn. All too soon you’ll be back at the office and you’ll likely be pleasantly surprised at how little has changed (except you!) 




How Many Working American Households Lack Private Disability Coverage?

Image of a house with wording: 50 million households in the US do not have private disability insuranceBy Andrew Melnyk, Chief Economist and Vice President of Research, American Council of Life Insurers

Last week, Fred Schott of The Council for Disability Awareness outlined an approach to answering the following question: how many working Americans have (or don’t have) some form of private disability coverage?

It is an important question because, as we know, Social Security Disability Insurance (SSDI) does not provide sufficient protection for most families. The American Council of Life Insurers (ACLI) can provide another way of answering this question.

In September 2017, the ACLI issued a report titled Assessing Americans’ Financial and Retirement Security that was based on extensive survey data. The data was gathered with respect to households, and not individuals — the same approach the Federal Reserve takes in its periodic Survey of Consumer Finances. One of the questions asked (but not directly addressed in the report) was whether anyone in the surveyed household was covered by a private disability insurance policy, issued on either a group or individual basis.

What is the definition of ‘household’?

Here’s how ACLI (along with the Federal Reserve and other entities that track consumer data on this same basis) categorizes households:

Per Census Bureau data, there are a total of 125.8 million households in the U.S. Our data indicates about 31.4 million (25 percent) of those are “retired” and the remaining 94.4 million (75 percent) are “non-retired.”  

A handful of “retired” households may still have some kind of attachment to the labor force — for example, a two-person household where one partner works 20 hours per week in a post-career job and the other is fully retired.

Because entering retirement is increasingly a multi-stage process rather than a specific date (i.e. more people are easing into it, perhaps by working part-time), that handful is likely to get larger. But that said, let’s make a simplifying assumption that disability coverage is applicable only to the “not retired” households.

The answer: 51.3 million

Our survey data revealed that less than half (45.7 percent) of “not retired” households have some form of private disability insurance. So, 43.1 million households in that category have at least some coverage. But more than half, some 51.3 million, don’t have access to private disability insurance. The latter number is very much in the same ballpark as what Fred came up with in his post.

To learn more about disability insurance and how it protects your income, visit RealityCheckup.org 




The Top 5 Reasons Why People Go Out of Work and Stay Out of Work

At least 35 percent of working Americans don’t have private disability insurance. And what that means is approximately 50 million people won’t receive a paycheck if they leave work to have a baby, or are recovering from an injury or an illness.

Working adults need disability (or income protection) insurance because people regularly leave work for short — or even long — periods of time. About 70 percent of full-time employees have sick days or vacation time they can tap into for short absences, but you could become financially strapped if you need more than five or 10 days off.

Depending upon the type of industry where you work, six to 10 percent of people are out of work long enough that they file a short-term disability claim (insurance that covers the first three to six months of your time off). Seventy-five percent of these people are out of work up to 75 days, and the rest can be out for 180 days or a year.

Meanwhile, the Social Security Administration says that more than one in four of today’s 20-year-olds will be out of work for 12 months or more for a variety of reasons before they retire.

Here are the top five reasons why people are out of work for three months or longer (according to a database representing long-term disability claims from a large group of disability insurance carriers):

1. Pain in your back and joints (aka musculoskeletal disorders)

Knees battered by too much hard running, ligaments torn on the ski slopes or from chasing kids, and back pain from too much time spent sitting, lifting or gardening: These are all examples of musculoskeletal disorders that are responsible for a nearly third of all long-term disability claims.

These results are consistent with information from the 2016 Social Security Disability Insurance database. If you want to try to prevent these type of injuries, shore up your body’s strength by engaging in exercise, eating healthy, and being very aware of repetitive movements you undertake everyday. Repetitive motion can include activities like driving to work and playing tennis.

2. Cancer

American adults have a one-in-three lifetime chance of being diagnosed with cancer, according to the most recent data from the US National Cancer Institute’s Surveillance Epidemiology and End Results (SEER) database. We see this risk reflected in LTD claims where cancer is in the second leading reason why people are out of work for three months or longer (15 percent of all claims). It’s important to know that it’s treatment for cancer — not the condition itself — that causes people to leave work temporarily.

Cancer can arise from endless possibilities, from your genetic makeup, to the environment around you, to your lifestyle. The Mayo Clinic recommends seven key ways you can build up your body’s defenses against cancer: avoid tobacco, eat a healthy diet, maintain a healthy weight and be physically active, protect yourself from the sun, get immunized, avoid risky behaviors, and get regular medical care.

3. Complications of pregnancy

Many people are surprised to see pregnancy listed as a cause of disability claims. In fact, it’s the number one reason why people file a short term disability claim. Women are typically paid six to eight weeks of disability benefits after they give birth to a child.

There will be times when a woman’s physician will determine that, for her own health and that of her baby, she needs to stop working in advance of delivery. In most cases, that pre-delivery absence iscovered as well.

But why would pregnancies show up as a top reason for long-term disability?

“About 50 percent of LTD plans have a three-month waiting period (also known as an elimination period), while the other half of plans have a six-month period before benefits are payable,” explains Fred Schott, Director of Operations at The Council for Disability Awareness. “A STD plan, sick days, or paid-time-off bank often covers all or part of the long-term disability elimination period.”

Schott says that three-month waiting period plans are common in industries such as education or healthcare, where more women work. This results in more pregnancy claims being filed.

“If delivery complications cause a woman to be out of work for more than six to eight weeks — or if pregnancy complications lead to her leaving work several weeks before delivery,” Schott says, “It increases the likelihood she’ll go beyond the three-month waiting period and she will receive LTD benefits. But the length of LTD pregnancy claims is very short — a few months at most.”

4. Mental health challenges

Mental health is a critical issue in the United States and across the globe. Depression is now the leading cause of disability worldwide according to the World Health Organization. And the National Alliance on Mental Illness shares that 20 percent of American adults will experience a mental illness.

Mental health challenges — including depression and anxiety disorders — account for 9.1 percent of long-term disability claims. The numbers of those who are struggling could be much higher, however, as there is a tendency for depression to go untreated, or to be associated with a physical cause for disability that goes uncounted as a result.

One or two disability carriers measure their causes of disability in a different way than the majority of the industry. They often split up musculoskeletal disorders into a series of separate categories. While there is nothing essentially wrong with this approach, it often pushes mental health out of the top five drivers of absence and disability. This analytic technique further masks the importance of addressing mental health issues in and outside the workplace.

Non-profit organizations in the U.S. and the U.K. are trying to tackle mental health by encouraging people to talk openly about how they are feeling with people they trust. You will often see these efforts in social media attached to #oktosay or #okaytosay.

5. Accidental injuries

Finally, we come to accidental injuries, which ironically enough is what many people assume is the most common cause of disability claims. This category includes injuries such as fractures, sprains and strains of muscles and ligaments and ranks as the fifth most common cause of longer-term absences at nine percent. Preparing to avoid mishaps is difficult — that’s why they’re called accidents! — so it’s important to have disability insurance in place in the event that an accident occurs.

So what should you do with this information?

Disability insurance protects your income if you need to miss work in order to have a baby or recover from everything from back pain, to a broken leg, to treatment for cancer. By knowing the main reasons why people leave work for longer periods of time, it soon becomes clear that illness and injury is far more common than most people realize.

This begs the question: If your pregnancy became unexpectedly complicated, you needed to take time off work to heal from an injury or illness, how would you pay the bills while you recover?

Learn more about how to protect your income at www.RealityCheckup.org




How Many Working Americans Have Adequate Disability Coverage?

Map of the USHow many working Americans have private disability insurance coverage?

This is a crucially important question for us at The Council for Disability Awareness. We would like to see all working Americans have some form of private disability coverage to protect their income when they’re out of work for an extended period of time because of a disabling injury or health condition.

Many people assume they have a safety net with either Workers’ Compensation (WC) or Social Security Disability Insurance (SSDI). But disabling illnesses or injuries are much more likely to be non-occupational in origin, which would rule out coverage under WC. And workers who become disabled off-the-job won’t always qualify for SSDI; they can face average wait times of 600 days for a hearing; and if they do eventually get benefits, the monthly amount (averaging around $1,200, based on the most recent data) probably isn’t enough to help them keep up with their ongoing expenses.  

Private disability coverage helps fill the gaps in the safety net. But how many working Americans actually have this important form of income protection?

The answer requires a lot of math — and some assumptions.

It’s important to point out that this number is not readily available. This is due to a number of complex factors, one of which is that disability insurance has traditionally been offered through different channels: as an employee benefit, as a benefit through an association, or on an individual basis. The data therefore is siloed. At The CDA, we’ve gathered data from several industry and governmental sources and have worked with this data through a set of clarifying assumptions — you’ll see these unfold in my argument below.

So, just how large is this problem? 

Let’s start by understanding the three ways you can get private disability coverage: through an employer (and there are various ways this can occur, as we’ll explain below); through an association or affinity group; or on an individual basis.

1. Through an employer

This can be in two main ways:

  • Coverage is part of a benefits plan and the employer pays some or all of the cost
  • An employee voluntarily elects coverage and pays for the entire cost  — this includes both cafeteria-style benefits and worksite enrollment plans

a) Employer pays all or some: 

The Bureau of Labor Statistics (BLS) Employee Benefits Survey is the go-to source for data on number of working Americans covered by employer-provided disability insurance (where the employer pays for all or at least part of the cost of coverage). Unpublished BLS estimates from the most recent (March 2017) National Compensation Survey show 49.4 percent of all civilian workers as having some form of employer-paid disability insurance (short-term disability only, long-term disability only, or both STD and LTD).

If we apply this percentage to 139.9 million, which is the latest (2017) BLS estimate of civilian workers in the U.S. (excluding Federal Government employees, who are not included in the Employee Benefits Survey), we get approximately 69.1 million working Americans in this, the biggest category of working Americans with some form of private disability coverage.

But that leaves 70.8 million who either are covered in some other way or aren’t covered at all. And that’s why we next look at the alternate way people can get coverage through their employer.

b) Employee pays all (voluntary coverage)

A growing number of employers are offering disability coverage on a voluntary basis. Employees can sign up for disability coverage, and they pay the full cost, but usually at attractive group rates and with the advantage of payroll deduction for premiums. Because they pick up the tab for premiums, if they do wind up collecting benefits at some point, they’ll receive those benefits on a tax-free basis. (On the other hand, benefits are taxable under a disability plan where the employer has paid the premium.)

How many of the roughly 70.8 million working Americans not covered under employer-paid disability insurance are protected by some form of voluntary coverage? There are two keys needed to unlock the answer.

The first is to get an estimate of how many employers offer disability insurance as a voluntary benefit. I asked Ginger Bates, research director at Eastbridge Consulting Group, a widely respected consultancy specializing in the voluntary space. Bates shared the following highlight from Eastbridge’s latest MarketVision Employer Viewpoint survey:

The graph shows, with respect to short-term disability (STD) and long-term-disability (LTD) coverage, the percentage of employers reporting they offered it on a fully employer-paid basis (blue), shared-payment basis (red), or employee-paid basis (green). It also shows, indirectly (if you subtract the total of blue + red + green from 100 percent), the percentage of employers that don’t offer the coverage at all.

We can redraw the graph to include “no coverage” as a fourth option:

Here, we’ve drawn a box around the blue plus the red. That box corresponds to the scope of the BLS survey (remember, they’re only looking at coverage paid in whole or in part by the employer). And we’ve drawn another box around the green plus the yellow. That corresponds to what’s outside the scope of the BLS survey. Within that second box, the green (percentage of employers who offer disability coverage, but the employee has to pay the entire cost) accounts for about a third of that box.

Now, let’s get back to our 70.8 million (the estimated number of working Americans who don’t have employer-paid disability insurance). It’s not unreasonable to assume that a third of them could be eligible for voluntary disability coverage offered through their employer.

But remember, this is voluntary coverage. Only those employees who actually sign up for the coverage (and, of course, pay the premiums) can be counted as covered. That’s why getting a handle on what the industry calls the “participation rate” (percentage of eligible employees who actually get the coverage) is so important here.

We turned once more to the experts at Eastbridge. They periodically survey voluntary insurance carriers on participation rates by coverage and provide that information to their subscribers. Eastbridge research director Ginger Bates provided findings from their most recent (year-end  2017) survey:

  • Short-term disability: 29 percent
  • Long-term disability: 34 percent

Given the greater percentage of employers offering STD coverage (based on other Eastbridge research, and also consistent with what BLS has found with respect to employer-paid coverage), let’s use an overall participation rate of 30 percent — which also happens to be consistent with what I observed when I worked at two different carriers.

The way we estimate how many people are covered by voluntary (employee pays all) coverage is:

Number of workers without employer-paid coverage (70.8 million)

X

Percent where employer offers voluntary coverage (33%)

X

Participation rate (30%)

This works out to just over 7 million.

2. Association/ affinity business

Employer-provided disability insurance (including voluntary) covers the largest number of working Americans. But it’s not the only way workers can get covered on a group basis. Another way is through a plan offered to members of a professional society (for example, the American Institute of Certified Public Accountants) or an affinity group like a college alumni association.

Disability coverage is just a piece of the larger “association/affinity” market, which includes property/casualty coverages such as auto and homeowners as well as a variety of life-insurance offerings.

The Professional Insurance Marketing Association, more commonly known as PiMA, represents most of the insurance carriers that serve this market. In 2013, it conducted a market survey, results of which are highlighted here. Based on the data they share in the public-facing report, we applied a series of assumptions:

PiMA reports that its members account for close to $10 billion in premiums with a total of 26 million certificates (i.e., individuals covered — and yes, one person can have multiple certificates, but in the interests of simplicity we’ll assume certificates = individuals). It also reports that approximately 30 percent of members’ sales involved life and health products (most association/affinity business involves property/casualty products).

Based on those numbers, we can estimate:

  • Average premium per certificate = $385 ($10 billion in premium divided by 26 million certificates)
  • Estimated total life and health premium = $3 billion (30% of $10 billion total)
  • Total life and health certificates = 7.8 million ($3 billion estimated total premium divided by estimated $385 premium per certificate)

It’s unlikely that every life and health certificate will involve disability coverage — but let’s use the 7.8 million as an upper limit to the number of people covered through this channel.

3. Individual disability

Individuals can also purchase a disability policy on their own. This is usually organized through an agent or broker. As is the case with the voluntary and association/affinity markets, there’s no comprehensive, publicly available data that gives an indication of how many people have coverage through this channel.

However, individuals with considerable experience in this facet of the business can make informed, “back of the envelope” calculations that give us a starting point. One of our contacts estimates that approximately six million workers have disability insurance on an individual basis.

Of those six million, we don’t know how many rely only on their individual disability policy for coverage, as opposed to those who have bought an individual policy to supplement coverage they already have either through their employer or an association affinity group to which they belong. For now, let’s assume that individual coverage is all they have.

Putting it all together

  • 69.1 million working Americans receive disability insurance as part of their employee benefit plan, and their employer pays some or all of the cost of coverage
  • 7 million have chosen to purchase disability insurance through their employer, but are paying the entire cost out of their own pockets
  • As many as 7.8 million working Americans belong to some kind of group like a professional organization or alumni society that provides access to disability insurance, and that’s how they purchase coverage
  • 6 million have worked with their financial advisors to obtain their own individual disability insurance policy (which may or may not be the only one that provides them coverage)

Assuming there’s no double-counting for any of these categories (and there probably is, but let’s simplify for the sake of argument here), this adds up to as many as 89.9 million working Americans who are covered by some form of disability insurance other than WC or SSDI.

But remember, we’re looking at a base of 139.9 million workers (excluding Federal Government). That would leave up to 50 million uncovered. That’s more than one in three working Americans who are potentially uncovered.

Are you one of them? If you are, do yourself — and those close to you who depend on your income — a favor, and visit our new educational website to learn how disability insurance works.  

 

Join the conversation: As I mentioned earlier, a lot of “clarifying assumptions” have been applied in this article. I welcome a “sanity check” of those assumptions — and the numbers to which they’ve been applied — from readers who have experience in this area. Write to us at info@disabilitycouncil.org