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Disability Insurance: Do I Need It or Not?

disability financial planning

“Help, I’ve fallen and I can‘t get up!”

You likely remember that catch-phrase from a 1989 t.v. commercial for LifeCall, a medical alarm and protection company. The commercial portrayed an elderly woman using her LifeCall medical alert pendant after she fell in the bathroom; the woman presses her alert and frantically says, “I’ve fallen and I can’t get up” to the dispatcher who then calmly tells her that help is on the way.   

Although that commercial may look somewhat “cheesy” in today’s world, it still accurately represents a scenario that is all-too-common among today’s seniors. Case in point: Supreme Court Justice Ruth Bader Ginsberg recently suffered three cracked ribs after a fall that occurred at her office.

Could such a scenario ever happen to you?  Or might you be severely injured in an accident that could render you incapable of going to work everyday?

Of course, there’s no way to accurately predict the answer to those questions, but we can refer to data that has been collected over the years to get a better sense of disability trends in the U.S.

According to the 2017 Disability Statistics Annual Report, approximately 12.8% of the U.S. Population suffered a disability in 2016 and, as we collectively age, the number of people with a disability naturally increases.

You may be skeptical that a disability will happen during your lifetime (we all prone to the “I’m invincible” mindset now and again), but the Social Security Administration (SSA) thinks differently. According to the Disability and Death Probability Tables for Insured Workers Born in 1997, published by the SSA, more than 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 they reach their normal retirement age.

Disability and US Population Graphic
Source: "2017 Disability Statistics Annual Report",  Rehabilitation Research and Training Center on Disability Statistics and Demographics

So if you know the risk of disability is out there, should you do anything differently in your financial planning to address it? Because everyone’s individual financial situation is different, there is no “one size fits all” answer here. But we can offer guidance on the right questions to ask when you have those important conversations with your trusted financial advisor or attorney:  

1. Do I need Disability Insurance? And if I already have it, how do I know if I have enough?

 Disability Insurance is the insurance industry’s term for a plan that provides periodic payments of benefits when a disabled insured is unable to work. It does not fully replace your income, but is designed to replace from 45%-65% of your gross income on a tax-free basis should illness (or injury) keep you from earning an income in your occupation. Every disability policy is different and should be assessed based on the quality of the plan and the specific needs of the insured.

 Many employers offer disability insurance to their employees, but not all employers. And if your employer does, it might not provide adequate coverage for your specific needs.  Remember, most Americans don’t have enough emergency savings stashed away to cover even three months of living expenses in the event they can’t work.  For far too many, the financial hardship posed by disability has caused many to file personal bankruptcy.

2. Do I need Long-term Care Insurance?

Because we are generally living longer lives, there is an impact on the need for long-term care.  The longer we live, the more likely it is that we will come to a point where we cannot take care of ourselves without help.

Healthcare professionals refer to Activities of Daily Living (or ADLs) as the most common indicators to determine physical disability. The ADLs are bathing, dressing, transferring from a bed to a chair, using the toilet, and eating. If someone is unable to perform these basic tasks, professional care is considered.

Disability may also be measured by one’s ability to perform the instrumental activities of Daily living or IADLs. These are the tasks that are necessary to live independently. IADLs are shopping, preparing food, cleaning the house, doing laundry, using transportation, taking medications, managing money, and using the phone.

In fully assessing one’s need for long-term care, both ADLs and IADLs are primary factors. In a recent blog written by my colleague Jonathan Thomas, the necessity for Long-term Care insurance as part of one’s personal financial plan is evaluated. His blog is definitely worth the read, especially since 15 million Americans are predicted to have a long-term care need by 2050!

Whether you’re talking about seniors or younger individuals, disability affects families, personal finances, and the overall health care system. Today we are fortunate to be living longer, more enriched lives than say 50 years ago; but with that blessing also comes the possibility of living a  disabled life longer.

Life is unpredictable. No one plans on becoming disabled. So it’s important to be prudent in your financial planning and at least consider different scenarios that could impact you and your financial autonomy. Work with a professional financial advisor to think through how a long-term disability might impact you and your family, and ultimately your achieving your “good life” retirement goals.


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