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.

How to Build an Emergency Fund

Life preserver in the ocean.If you had to pay an unexpected $400 bill today, would you be able to without reaching for a credit card or asking for a loan? If your answer is no, you’re not alone. And you need to keep reading this blog.

A large proportion of working Americans are in the same boat, lacking liquidity or cash reserves, amid an overall feeling that they’re drowning in bills.

The fifth edition of the Federal Reserve’s Survey of Household Economics & Decision Making (SHED) was released last week. Once again it asked whether people would be able to pay for an unexpected $400 expense in cash or the equivalent of cash. Forty percent said they wouldn’t have enough. This was a slightly improvement from the 49 percent in 2013. 

According to a LendingTree report in 2017, four in five Americans are in the red—and a quarter of those in debt do not have a plan to pay it off.

An emergency fund is your essential starting point. There are many reasons why this is so highly recommended by financial experts: If an unexpected medical bill, car repair, or appliance disaster arises, you’re able to pay for that cost without adding further to your debt. This will help you then shore up even more helpful forms of income protection, such as disability insurance.

Here’s how to build your emergency fund: 

1. Set a goal

Goals are incredibly important in financial planning. A vague wish won’t get you anywhere. You need to make yourself accountable. Finance expert Dave Ramsey advises that people set the goal of saving a $1,000 emergency fund as soon as possible. You can also work out what three to six months of living expenses would be and aim to put that away. 

2. Plan a place for the fund

You don’t want it hanging out murkily in the midst of your active checking account.

A high yield savings account is a great place to store the money. You need to be able to access it should an emergency arise, but not have it mixing in with your regular money. At the very least, put it in a savings account.

3. Build a budget

In order to make this work, you need transparency into your daily habits, and where you may be losing money without realizing it. By building a budget (and there are a whole host of apps to help you do that) you can track your expenses in razor detail. Spend some time with your budget, and study your income and outgoings. 

4. Lower your expenses

  • Cut back on unnecessary items: Do you need to eat out at restaurants? Could you take a packed lunch to work more regularly? Do you really need your cable TV subscription? Go through your budget and identify areas you could cut back on costs. Everything counts. Even if it seems like a tiny action, those will add up over time.
  • Renegotiate your bills: Have you asked your various providers if they can provide you with better rates? It’s definitely worth the time to ask. From your internet bill to credit card interest rates, there are a whole host of items you can try to negotiate, so pick up the phone and have a conversation.
  • Add all of these savings into your emergency fund: Make a regular habit of shifting those extra dollars into your savings account.

5. Increase your income

In addition to cutting things back, how can you expand your income? 

  • Save the raise: If you get a raise, don’t just expand your lifestyle and indulge in more treats for yourself. Act as if nothing happened. Stick to your previous budget and siphon all that extra cash into your fund. By doing this, you’ll really be able to build up that nest egg quickly.
  • Sell something: Do you have a guitar lying in your basement that’s gathering dust? Throw it up on eBay. Do an inventory of your possessions that others may like, and sell off what you don’t need.
  • Use that tax refund: If you get a tax refund or a gift, rather than immediately splurging it, apply your inner-strength and shift it into your savings.
  • Find a side hustle: You may already be working full time, but is there another job you could take on to help bring in some extra resources? Maybe it’s walking dogs, working as a tutor, or even starting a blog that has money-making potential.

6. Automate everything

Make sure all your bills get paid on time by automating everything. If your budget allows you to shift a certain amount of money into your savings each month, automate this too. You can even think about setting up a separate “Bill Pay” account, and automatically move that money over as soon as each paycheck comes in (more on how to do that here.)

Once you put these steps into place, you’ll be moving in the right direction. The wonderful thing about saving money is that once you start to actually do it and see that nest egg start to form, you’ll become inspired and spurred on by your success. This activates a virtuous cycle of change. 

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.

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)


Percent where employer offers voluntary coverage (33%)


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

Disability Insurance Can Be An Important Part of a Pregnancy—But It’s Much More

Pregnant woman holding a baby

Disability insurance — also known as income protection coverage — is one of the most important and overlooked pillars of financial planning.

Think about it. The average person is so dependent on their ability to earn a living, they couldn’t continue their lifestyle if they missed even a single paycheck.

The Federal Reserve asked adults in 2016 how they would pay for a hypothetical emergency expense that would cost $400. This amount is approximately the cost of an unexpected car repair, appliance replacement, or medical bill. Forty-four percent of people said this kind of bill would be hard to handle, and that they either could not pay the expense or would borrow or sell something to do so.

When people buy insurance, most choose some form of health, life, car, and homeowners’ or renters’ insurance. All of these purchases have one common denominator; the premiums are paid with your income. When you think about it, it seems foolish to forget to insure the one thing that lets you pay for everything else — your paycheck.

The connection between pregnancy and short-term disability

There are many types of accidents and illnesses that prevent people from working for a period of time: back pain, depression, heart disease, cancer, auto accidents, and so on. Yet many people don’t think of having a baby when they think of “disability.” Yet pregnancy is the most common cause of short-term disability claims.

Women are typically paid eight to 10 weeks of disability benefits when they take time off to have their child (two weeks before their due date and six weeks afterward). The duration can vary based on cesarean-section deliveries or other conditions that may require the claimant to limit work activities or work exposure.

One of the major differences between pregnancy and other types of disability claims is predictability. The timing of pregnancy for many can be the result of planning. 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 you buy coverage before you become pregnant. This way there is little risk of underwriting issues or denial of your claim due to a pre-existing condition limitation.

Pregnancy and long-term disability insurance

Most long-term disability insurance offered through your workplace will also pay benefits for pregnancy-related complications if you can’t work for more than 90 days.

If you purchase individual disability coverage through a broker or agent, most insurance carriers will cover complications of pregnancy if your policy has a waiting period of longer than 90 days. (The waiting period — also called the elimination period — is how long you have to wait to receive benefits after you become disabled from work.)

The advantages of continuous coverage

Some consumers will purchase disability insurance in anticipation of a pregnancy and cancel the coverage after delivery. It’s also not uncommon to see ex-participants re-apply while planning a subsequent pregnancy. While this purchasing pattern is not illegal or unethical, it’s a risky approach to insuring your income, and it’s certainly not a pattern that disability insurance coverage was designed to endure.

So, what is a win/win for the carrier and policyholder? Maintaining continuous coverage.

It’s important to remember that disability insurance is designed to protect you against the unexpected loss of your work capabilities due to an accident or illness. While pregnancy is a common reason to file a claim, you always have additional risk for many unexpected events.

It’s also important to remember that voluntary coverage that you buy at work is often subject to underwriting guidelines. Your ability to obtain coverage could change at any time if you have an accident or develop a newly-diagnosed health condition. Trying to time when you have disability coverage is similar to trying to time when you invest in the stock market, and could easily leave you uncovered at an inopportune time.

None of us are immune to accidents or illnesses. They can strike at any time. It’s important to make sure that you’re covered. And once you’re covered, it’s important that you stay covered, regardless of the original reason you applied for your disability insurance. Get it, keep it, and rest easy knowing that you planned ahead.