Financial Impact on Disabled Individuals Can Be Staggering, Says New Study
For Immediate Release
May 15, 2009
Arlington, VA, and Washington, DC – May 15, 2009 – The financial impact on individuals who become disabled can be staggering if they lack disability insurance—as high as 20 times a person’s annual salary, finds a new study released today by the nonprofit LIFE Foundation and America’s Health Insurance Plans (AHIP). Conducted by the global consulting firm Milliman, Inc., the study, titled “The Impact of Disability”, is a rare look at the consequences facing individuals who become disabled and can’t work, and the level to which various types of disability income protection can help to reduce the financial impact. The findings reveal that in the absence of insurance, a majority of Americans would likely have to make difficult financial decisions, or even drastic lifestyle changes, in order to cover the costs associated with disability, regardless of whether the disability is short- or long-term.
The Cost of Disability Hits Single, Low Income and Long-Term Disabled the Hardest
Examining four representative scenarios of newly disabled individuals, the study found, for example, that the financial impact of a disability – equal to lost income plus expenses – to be as high as nearly $1 million for a 40-year-old, single male earning $50,000 per year who suffers a long-term disability lasting until age 65 – nearly 20 times his pre-disability earnings. The study also shows that the costs associated with short-term disabilities can be quite significant – equaling one to nearly two times income in some cases for a disability lasting just two years.
The study by Milliman found that those hit hardest by the costs resulting from a disability are single individuals, who do not have a second income to rely on; lower-income individuals, because added expenses are greater relative to the lost income; and those who suffer longer-term disabilities, since both income and expenses tend to increase with inflation, raising the cost of disability over time. (Further details can be found in Table 1 in the Appendix).
Further illustrating the stark financial reality outlined by these findings is the fact that as a result of the recession, many Americans have less savings and investments to fall back on should they become disabled and can’t work. According to a recent national survey conducted by LIFE, more than a quarter (27%) of Americans admit they would begin having difficulty supporting themselves financially “immediately” following a disability, while nearly half (49%) would reach that point within a month.
“Our experience tells us that if you become disabled and don’t have disability insurance, you’re going to have a very rough go of it. This study quantifies the impact of a disability so working Americans can get a better understanding of financial difficulties they’ll likely face without proper insurance coverage,” said Marvin H. Feldman, CLU, ChFC, RFC, president and CEO of the LIFE Foundation. “Disability Insurance provides a financial safety net that can be counted on to replace lost income if you were suddenly out of work due to illness or injury.”
The Value and Availability of Sources of Disability Income Protection
The study also shows that various sources of disability insurance provide valuable income replacement to help cover the high costs of disability and keep life on track for people who can’t work due to a disabling illness or injury.
In fact, private disability insurance plans, such as employer-sponsored (primarily group) or individual coverage, can reduce the cost of a disability by 70-80%. Individual disability coverage, in combination with employer- or government-sponsored insurance programs, can reduce the financial cost of disability by 80-95%. (Further details can be found in Table 2 in the Appendix).
The study also makes clear that while government-sponsored disability insurance—either through Workers’ Compensation or Social Security—is available to many working Americans, it can be difficult to qualify for. Workers’ Compensation insurance is limited to disabilities that occur on the job, but a vast majority (90%) occur outside the workplace and are therefore not covered by Workers’ Compensation programs. In recent years, only about 45% of initial applications for Social Security benefits have been approved, and the average monthly benefit, $1,062, is barely above the poverty level.
"The Social Security Disability Insurance (SSDI) program can be one source of disability income for many Americans, but this is no guarantee that disabled individuals will be eligible for SSDI,” said Karen Ignagni, President and CEO of AHIP. “Working Americans and their families can benefit from the value that private disability income insurance provides.”
The Non-Financial Impact of Disability
The study also examines the non-financial impacts associated with disability. While difficult to articulate and quantify, they are often tied to an individual’s overall happiness and sense of self-worth, and can be exacerbated by the financial strain that occurs when a disabled person is overwhelmed with expenses in the absence of sufficient income. The availability of benefits from government programs and private insurance during a period of disability can also mitigate the severity of the non-financial costs.
“Not only does a disability take a financial toll, but it also has an impact emotionally and psychologically on the individual and affects the family as well,” said Ignagni. “Private disability coverage helps not only to address the financial toll, but it also allows a person to focus on recovery and rehabilitation.”
May is Disability Insurance Awareness Month
The release of the “Impact of Disability” study from LIFE and AHIP coincides with Disability Insurance Awareness Month, an industry-wide campaign designed to encourage working Americans to take stock of their need for disability income protection.
“The reality is that nearly one out of every three workers will suffer a disability that keeps them out of work for 90 days or longer at some point in their career and yet roughly 70% of working Americans do not have long-term disability coverage,” said Feldman. “It is our hope that through studies such as this one, we can motivate greater numbers of people to investigate their need for disability insurance protection.”
View the “The Impact of Disability” study.
About Disability Insurance Awareness Month
Disability Insurance Awareness Month (DIAM) was created to get American workers to think about the need to protect their greatest asset – their ability to earn an income. Held in May, DIAM is an industry-wide effort that is coordinated by the nonprofit LIFE Foundation. For more information, visit www.lifehappens.org/diam.
The Life and Health Foundation for Education (LIFE) was founded in 1994 in response to the public’s growing need for information and education on life, health, disability and long-term care insurance. LIFE also seeks to remind people of the important role insurance professionals perform in helping families, businesses and individuals find the insurance products that best fit their needs. To learn more about these topics, visit www.lifehappens.org.
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