Broker Check

Disability Facts

Disability 101

DIA: Educating the Public about Disability Insurance

~ HealthDecisionssurance April 27, 2007

May is Disability Insurance Awareness Month, and each year the statistics garner more and more attention from the public, but advisors and financial planners watch as millions go without coverage for catastrophic injury that could keep them out of the workforce. Individuals are accepting all of the risk of a debilitating condition or accident, and endangering their own financial solvency.

With many different types of DI products available to consumers and businesses including short- and long-term products and guaranteed renewal policies spreading the word to those that need protection most has become the goal of Disability Insurance Awareness Month.

Disability Insurance Awareness Month (DIAM) was established to help agents and brokers "educate consumers about disability insurance and help them understand that disability insurance is a way to safeguard their paycheck and prevent financial disasters," according to Mike McCord, chairman and president of Illinois Mutual. Illinois Mutual is a main sponsor of DIAM, with many other companies and organizations offering their time and resources towards the effort.

With recent advances in medicine and technologies, those ailments that used to imply almost certain death and cancer, heart attack and stroke now can lead to almost certain disability. And though many Americans have put at least some thought into their retirement planning through 401k or other savings vehicles, few have considered their preparedness for a catastrophic ailment in the short-term. As the educational resource web site summarizes it, "What if your last payday was your last payday?"

In a recent survey, the Council for Disability Awareness (CDA) revealed that nearly 60% of working adults have not discussed how they would manage a disability that would limit or even eliminate their income for a period of time. With American savings rates on the decline nationally, low-cost DI products can offer the financial security and peace of mind that every American desires.

Even with savings, Americans are at tremendous risk for incurring financial hardships, as generally disabilities also come with increased living expenses. So even if you have ten years of savings if you have that could still be devoured by the expenses of a major disability.

There are some public solutions available though, but since 70% of all claims made to the Social Security Administration are rejected, individuals are going to be left to their own devices for solutions and income. And even if you are approved by Social Security, there is still a mandatory five calendar month waiting period before government benefits will begin to apply.

With so much uncertainty in financial security, disability insurance becomes the foundation of a solid financial plan, and it is up to the insurance agent and broker community to do a lot of the leg work to educate the public at large.

That is why the Center for Insurance Education and Professional Development has created the Disability Income Associate (DIA) designation. This three course program serves as not only a way for agents and brokers to advance their career, but also as a reassurance to the public of the proficiency of the representative they are dealing with.

A DIA designation means that participants have acquired knowledge of the health care industry and the role of disability income insurance in protecting individuals from the financial losses that often attend serious physical injuries and other severe health afflictions. Upon completion of this course of study, students will understand the fundamentals of the health insurance industry, the role of disability insurance within the health care continuum, and recent disability trends.

Modern medicine is reshaping America's future, but individuals must still prepare for the unexpected. Disability insurance is the key to stability in uncertain times, and the DIA designation will empower agents and brokers to take the next step forward in their careers to help individuals prepare for the future.

Quick Facts on Disability

The sole purpose of individual disability insurance is to replace your after-tax income in the event of an accident or illness. These policies do not provide protection from medical expenses or recovery of damages for "pain and suffering".

Since the benefit payments are designed to be income tax-free, insurance coverage in the amount of 2/3 of your salary is roughly equivalent replacing your net take-home pay. This is usually the maximum amount of insurance that you can purchase.

Be prepared to show the insurance company a pay-stub is you are salaried or an income tax return if you are self-employed to prove the amount of insurable income.

If you are self-employed, you can only insure the amount of net income that you reported on your tax return, even though your actual earnings might be much higher. In this case, you might want to supplement your insurance with "business overhead coverage" that does not depend on net income.

Expect the insurance policy to exclude or limit coverage for pre-existing conditions. If you have a bad knee, for example, expect that your policy might have a 5 year rider on claims due to knee injuries.

Most policies are issued for a term of five years of coverage, although you can buy a longer or shorter benefit amount.

Most policies have a 90 day waiting period before you can begin collecting a benefit, but you can buy longer or shorter waiting periods.

Most policies integrate with Social Security disability insurance. This means that the total amount of the benefit you collect will not exceed your net after-tax income before you were disabled.

Most policies may be continued year after year until you retire. But the average life of a disability insurance policy is about 5 years.

The average time required for an insurer to review an application is about 3 weeks. The insurer may request copies of medical and financial records.

Applications are still submitted on paper; no online enrollment system is available.

Expect the premium cost to be about 2% of your salary if you have a "desk job" and about 4% of your salary if you work with your hands. Of course, this is a very rough guideline, and the actual cost will depend on a greater number of individual factors.

When a policy is issued, you have at least 10 days to review all of the details and cancel the coverage if you are not completely satisfied. It may be useful to have an independent financial adviser review the new policy during this period.

Assuming that you keep disability insurance for the balance of your working career, the probability of suffering a loss of income due to accident or illness sufficient to trigger a claim under your policy is about 1 in 4.

If you become disabled, you should consult with an attorney who specialized in disability insurance claims before filing a claim with the insurer. This may help avoid delays and disputes regarding the claim.