Is income-protection a “luxury good” like designer clothing, fine wine, or—dare I go there?—a Peloton? A look at Bureau of Labor Statistics (BLS) Employee Benefits Survey data on availability of employer-paid short- and long-term disability insurance benefits suggests you wouldn’t be totally off-base if you answered “yes” to that question.
For both STD and LTD benefits, as average wage increases, so does availability. One of the ways BLS cuts its data is into quartiles ranging from the 25 percent of workers with the lowest average wages all the way up to the 25 percent with the highest. Using this view, we can see that in the lowest quartile, 18 percent of workers have access to STD benefits and only 6 percent have access to LTD. But for workers in the highest quartile, access rates are much higher: 63 percent for both STD and LTD.
This disconnect between lower- and higher-paid workers is puzzling. That’s why when the Council for Disability Awareness did its 2019 Consumer Survey, one of its goals was to learn more about “low-to-moderate income” (LMI) workers’ attitudes regarding disability, income protection, and financial security. Our survey population included working adults in households with annual incomes of $25,000 or more; for our purposes, the LMI segment was those with household incomes in the $25,000 to $50,000 range. To put that segment in context, consider this analysis of household income by percentile which shows that our LMI segment occupies the 20th to the 40th percentile range (or, in data-geek speak, the 2nd Quintile.)
In the remainder of this post, I’ll share key highlights of what we learned about LMI workers. (For more details, check out the presentation deck stored ) Next week, I’ll address some of the implications of those findings in a second post.
Who has—and doesn’t have—disability insurance coverage?
We asked respondents if they had various forms of insurance coverage, including short- and long-term disability. Unlike the BLS, which in its annual Employee Benefits Survey looks at only disability insurance coverage paid in whole or in part by an employer, we looked at all forms of DI coverage, including voluntary employee-paid benefits obtained at the workplace or individual DI purchased through a financial advisor or agent. That said, however, we did find that workers in higher-income households were less likely than their lower-income counterparts to lack any kind of DI coverage:
For survey respondents who told us they had no DI coverage, we asked them to tell us the reasons why (they could give up to six different reasons).
The most common reason (given by almost one in three respondents who lacked DI coverage) was “I never thought about it.” However, we didn’t see a statistically significant difference among income bands. And it was pretty much the same for the second most common reason (28 percent of non-DI respondents), “I don’t know enough about it.”
But when it came to the third most common reason non-DI respondents gave for not having coverage (“I can’t afford it,” given by one in five[i]), we did see a set of statistically significant differences among income bands:
But wait, there’s more … much more
Through our survey, we learned much more about how well-positioned (or not) lower-to-moderate income workers were to withstand the financial shock of not being able to work because of an injury, illness or pregnancy:
- Financial Insecurity: We asked survey participants how financially secure they felt. The percentage responding who felt insecure decreased with increasing household income. Almost 30 percent of the lowest income band reported feeling financially insecure, as opposed to less than 10 percent for all other bands combined.
- Minimal to No Savings: We asked: “If you were to lose your income for a period of time, how long would you be able to pay your bills (without taking out a loan)?” Almost 40 percent of respondents in the lowest income band reported their savings would last less than one month— or they had no savings at all. By contrast, less than 10 percent of respondents in all other income bands combined reported having minimal to no savings.
- Awareness of Ways to Plan for Disability-Related Income Loss: Just over half of people in the lowest household income band stated they were aware of ways to plan for a disability-related income loss. This awareness percentage went up along with household income.
- Aware But Not Prepared: Percent of respondents stating they were aware of ways to plan for disability-related income loss, but hadn’t yet taken steps to protect their income, was highest for the under-$50,000 income group (over half), and it went down as household income went up.
- Bottom line: LMI workers are unprepared for disability. Over 60 percent of respondents in the lowest (under-$50k) household income band stated they were unprepared for a three-month loss in income due to a disability. Unpreparedness decreased as household income increased, with the highest income band registering an unpreparedness rate of less than 15 percent.
These findings, taken as a whole, tell us that the challenge lower-to-middle income workers face is more than just a matter of disability-insurance access and affordability. It’s a matter of financial wellness—and that is definitely not a luxury good! Stay tuned for more about that topic in the next installment.:
i My advice to anyone—regardless of income level— who cites this as a reason: You can’t afford not to have coverage (and by the way, “coverage” doesn’t necessarily come in the form of insurance; it can also be provided through an emergency savings fund with enough in it to cover living expenses for a three- to six-month period in the absence of regular income).
Consider the latest Social Security data (check out Table A in this report). If you’re entering the workforce today, you have a 67 percent probability of surviving to your normal retirement age without a disability—which is the same thing as saying you have a 33 percent probability of being disabled during your working years. And that’s using Social Security’s stringent definition of disability, which assumes among other things that you’ll be out of work at least one year. There’s an interesting study where the researchers, using a less-restrictive definition, concluded that over half of adults will experience a period of work disability in the course of their careers!
Now consider this: Look at Table C in the same Social Security report. If you’re entering the workforce today, Social Security’s actuaries put the probability of your dying before your normal retirement age—without having experienced a disability—at less than 7 percent. Yet you’re more likely to have life insurance than disability insurance, right? (BLS says that’s the case; check out their data for all workers. And we had similar findings in our Consumer Survey.) Does that make sense to you? I think not.