May is Disability Insurance Awareness Month. It’s a month to educate and do something about the enormous gap that exists between Americans’ need for disability insurance and the actual coverage they have. So what is disability insurance?
In the event of an injury or illness that prevents you from working and earning an income, a disability policy would pay you up to 60% of your standard income on a tax-free basis. This coverage assists with household bills, medical bills, and anything else in a time of need. Hence, many financial planners refer to it as “paycheck protection” coverage.
Regardless of the relative size of your nest egg, savings, or investments, disability insurance is worth considering for all income-earning individuals. This is particularly true if your or your family’s lifestyle depends on your income. During a person’s working years, the risk of a disability event is higher than one would expect. One in four of today’s 20-year-olds can expect to be out of work for at least a year because of a disabling condition before their normal retirement age1.
Financially speaking, your income can be viewed as your most important asset because it’s the required fuel for nearly all things in life. However, over 50 million working adults in the U.S. are going without paycheck protection.2 That is a surprising stat, given that individuals typically only need to spend a small fraction (1-3%) of their income to protect the majority of their income (up to 60%) for the long term!
Feel free to reach out to our team if we can assist with any questions, concerns, or requests on this topic or others.
- Social Security Administration, Disability and Death Probability Tables for Insured Workers Born in 1999 https://www.ssa.gov/oact/NOTES/ran6/an2020-6.pdf, Table A.
- American Council of Life Insurers, Assessing Americans’ Financial Retirement Security, unpublished data from study released in September 2017 as https://www.acli.com/-/media/ACLI/Public/Files/PDFs-PUBLIC-SITE/Public-Industry-Facts/Assessments_Report_082917.ashx?la=en ACLI found that 54.3% of non-retired households (51.3 million in total) did not report having disability insurance. Assuming there is at least one adult in each household, this means the number of “uncovered” adults is at least equal to the number of “uncovered” households.
