A Consumer's Guide to Disability and Disability Insurance

Other interesting things to know about disability:

- 7 out of 10 people between the ages of 35 and 65 become disabled for three months or longer.

- The average length of disability lasting longer than 90-days is 36 Months.

- Most American families have only enough money in savings to cover two months worth of bills.

- In 2000, wage and productivity losses from unintentional injuries was $259.8 billion (Statistical Abstract of the US: 2002)

- The maximum Social Security disability payment for 30-yr old earning $70,000 per year is just $1600 per month.

- To be eligible for Social Security disability, your disability must last at least 12 months.

- Social Security Disability will only pay an approved claim after a minimum of 5 months have passed.

So if you suddenly become disabled... how would you pay your bills?

What is disability?

The Random House Webster's Dictionary of American English defines disability as:

"Lack of adequate strength or ability; incapacity; a physical or mental handicap; anything that disables or puts one at a disadvantage"

The Social Security Administration defines disability this way:
"The inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or has lasted or can be expected to last for a continuous period of not less than 12 months."
Emphasis Added

Simply put: Disability generally means that you are unable to work. And Social Security Disability means you are unable to work at anything.

Disability can happen at any time, to anyone - regardless of race, religion, gender or profession.

Sometimes people become disabled due to injuries received in a car accident. And sometimes it's a simple matter of getting hurt while participating in sports, or improving your home in your off hours.

A very common injury that can cause you to become unable to work, is a back injury. And back injuries can happen simply by moving furniture, working in a garden, or fixing a leak in your roof.

Other people become unable to work due to an illness or the onset of a disease: Like diabetes, stroke, or heart attack. And even pregnancy can cause some females to become unable to work: If the pregnancy develops other complications that require the woman to stay in bed, she is unable to work.

This Can Happen to You Too.

Unfortunately, people often assume that just because they're healthy, they can't become disabled. And that's simply not true. Accidents happen. So being healthy doesn't usually have anything to do with whether you become disabled.

Let's look at some undeniable facts:

- In 2000, wage and productivity losses from unintentional injuries was $259.8 billion (Statistical Abstract of the US: 2002)
- In 1999: 338,000 people were injured in a fall
- In 1999: 141,000 people were injured due to overexertion
- In 1999: 338,000 people experienced sprains and strains

And just a few of the ways these injuries happened included:

- Hand and power saws
- Hammers
- Kitchen flatware
- Beds
- Tables
- Ladders
- Rugs and Carpets
- Footwear
- Bicycles
- Swimming Pools

And maybe you'll be one of the lucky few who never gets injured severely enough to be unable to work. But the situation can still affect you. For instance:

- Are you one part of a two income family? If your partner becomes disabled, you'll lose a substantial percentage of your household income.

- Are you receiving child support or alimony payments? If your ex becomes disabled, you'll lose that income.

- Are you a single parent? If you became disabled, your kids would be drastically affected.

Employers Don't Take Care of Disability

Most people think that employers take care of them if they become injured badly enough to no longer be able to work. And that is true... sometimes.

You see, most employer's don't even carry group disability insurance. In fact, less than 41% of companies who have over 100 employees carry disability insurance. And not even 19% of companies who have less than 100 employees carry it.

Worker's Compensation is another option that comes to mind when injuries happen. What's not always known though, is that worker's compensation only covers accidents that happen on the job. So, if you're off work and hurt yourself in the garden, worker's compensation will not apply, and will not provide you with an income.

Having a Savings Account Isn't Enough

Some people feel that they're covered completely because they save at least 10% or more of their income. And if you are saving that, then congratulations. This is an excellent way to help cover emergencies.

Unfortunately one of the hard facts of becoming disabled, is that one full year of disability can wipe out 10 years worth of savings.

And as was mentioned earlier in this report, the average length of disability that lasts longer than 90-days is 36 Months. Could you support your family for that long? Do you even have 10 full years of savings put aside yet just in case?

About Social Security Disability

In the United States, if you're disabled for more than 12 months, you could qualify for Social Security Disability. But as was mentioned previously, Social Security has a few rules and procedures that can make things extremely difficult.

First of all, Social Security will not pay benefits for a minimum of 5-6 months. And that's after you've been approved.

To be approved, you must show that you cannot do any kind of work what so ever. And you have to show that you won't be able to do any kind of work for at least 12 months or more.

Now, if you think you'll be injured badly enough to meet the qualification requirements of Social Security, consider these additional unsettling facts:

- In 1993, Social Security denied 55% of the disability applications it received.
- In 1998, Social Security only approved 35% of the claims submitted to them.

Do those look like odds you can count on?

And don't forget: The maximum Social Security payment for a 30-yr old who has been earning $70,000 per year is about $1600 per month. That's roughly 25% of their current income.

About Private Disability Insurance

Private disability insurance allows you to protect your future income. Completely.

A 30 year old for example, earning $48,000 per year, can reasonably assume their income will increase a bit over time. If it increased just 6% a year until the age of 65, that person would earn over $4 million before they retired.

If this person becomes disabled of course, there's no way they'd be able to earn that money over time. But if they were to take precautions at the age of 30, they could insure that future $4 million of potential income. Even better: This type of insurance doesn't depend on who your employer is, or what benefits they do or don't provide.

Now if you were to get private disability insurance while you're healthy - like the 30 year old up-and-comer in our example above - you'd qualify for a good initial disability insurance rate. And you'd be able to lock in that rate for the long term.

If you wait though, even for a measly 10 years, your rates could be much higher. And in some cases you could even be disqualified for disability insurance - because your health status may have changed by then.

So your best bet is to get disability insurance while you're healthy and uninjured. Lock in the lowest rate you can, and base the total coverage amount on your estimated future earnings. This way, if you do become disabled in the future, you'll be able to maintain your current lifestyle without hardship.

Now, as with most insurance, the terms of the policies can vary greatly. One company's definition of disability may be quite different than another's. And there are thousands of companies out there. So your best bet is to shop around. Read the fine print. Request quotes and details. Then compare all of the companies you've researched, and make an informed decision that's right for you.