Disability Can Happen to Anyone: Are you Prepared?
Most of us enter adulthood with the hope of getting a good job, maybe starting a family, and basically living the American Dream – whatever that means to us. As we pursue our dreams, no one ever plans on getting too sick or injured too badly to work. The prevailing belief is that disability is “something that happens to other people”, but “it won’t happen to me.”
The fact is that disability does happen, and it happens a lot more frequently than most people realize. According to the Centers for Disease Control and Prevention (CDC), at any given time, one out of every four American adults suffers from a disability that impacts major life activities. That works out to 61 million individuals ages 18 or over who live with a disability in the U.S.
Here are some other numbers that help put this into perspective. If you are a 20-year old worker in the United States, you have just over a one in four chance of becoming disabled before you retire.
You may be thinking, “okay, I’ll just be more careful and try to avoid any kind of accident that might cause a serious injury”. That’s fine, but statistics show that accidents are not usually the cause of disabilities. The majority are caused by back injuries, cancer, heart disease, and the onset of other serious health conditions.
What Happens if a Disability Happens to You?
If you are one of the 25% of the American workforce that will eventually end up with a disability, are you prepared to deal with that? Some disabilities are permanent, but just looking at averages, the average length of a long-term disability claim is just under three years. To be financially prepared for this type of event, you need to have at least one of two things in place; an emergency fund with enough savings to last three years, or disability insurance.
Having an emergency fund is a great idea that everyone should adopt, but it is unrealistic to expect most people to have even three months-worth of emergency savings, let alone three years. In fact, only 40% of American households have at least $6,275 in savings, which is the amount it would take to get a family of four through three months living at the poverty level.
The other option is to obtain disability insurance, but at least 51 million working adults are without that either (aside from the basic coverage available through Social Security disability, which is extremely difficult to get approved for). This means that millions of American households are living on the edge, just one catastrophic health event away from financial insolvency.
Most households have insurance against other hazards that may occur. Anyone who has a car is required to have auto insurance. And if you own a home with a mortgage, you are required to have homeowner’s insurance to protect against risks such as fire and vandalism. Many people also carry life insurance to insure against the possibility of an untimely death. Yet, a lot of these same people do not have insurance for their most important asset; their ability to earn a living.
If you are the breadwinner (or one of the breadwinners) in your household, it makes sense to have insurance that will provide an income for you and your family if you are physically unable to work. Plans can be purchased privately, and a large number of employers also offer them for full-time employees or even employees that only work 30 hours a week.
Private Disability Plans vs. Group Employer Coverage
If you are considering disability coverage for you and your family, you should first check to see if your employer offers a plan. Private plans are typically more expensive, although you also may have the option to purchase more comprehensive coverage. A group plan through your employer will typically pay you about 60% of your pre-tax income for a long-term disability, although this can vary widely depending on the specific plan. Short-term disability plans may be available through your employer as well.
Group disability plans through an employer are typically much easier to apply for. There is no need to prove your income, since your employer already has that information. In addition, group plans are “guaranteed issue”, meaning everyone in the group gets covered without the need for a medical exam. There will usually be a waiting period of 90 days before coverage kicks in, this is commonly known as the “elimination period”. To plan for that, you should try to either have three months-worth of emergency savings or purchase short-term disability coverage to bridge that gap.