Why Disability Protection is So Important

April 03, 2013

Several weeks ago, my brother was working on some routine plumbing around the house when he bent over to pick something up.  As he straightened up, he heard a “pop” and felt a sharp pain in his knee.  Immediately, he knew something was wrong, and a quick trip to the emergency room confirmed what he had expected: he tore his meniscus.  Within a few days, my brother had surgery performed to repair the damage and for the next six to eight weeks he will be unable to put any pressure on his leg. 

If my brother worked behind a desk from his home this might not be so bad, but my brother is an airline pilot and not being able to use his leg means he is unable to work.  His injury got me thinking. Am I prepared in the event I’m ever disabled and unable to work?

No one ever thinks it will happen to them, but according to the Social Security Administration, just over 1 in 4 of today’s 20 year-olds will become disabled before they reach age 67.  Many think their employer-provided coverage or workers’ compensation will be enough, but in reality less than 5 percent of disabling accidents or illnesses are work related, meaning that workers’ compensation would not cover 95% of them. Our own research also shows a vulnerability, as over a third of employees report they do not have a long-term disability policy in place in case they become ill or have an accident and are unable to work at their current job. It seems the only people that plan for the possibility of being disabled are those that know someone that has been. It’s for that reason that I would like to share with you some ways you can be better prepared in case a disability keeps you from work:

Make sure you have adequate disability insurance

If you happen to work for a large employer, chances are you have disability insurance benefits available to you.  Be sure to sign up for them and make sure you understand exactly when benefits are payable, how much the benefits are worth, and how long the benefits are paid.  For example, some disability insurance policies will pay a benefit as long as you are unable to perform the job you were hired and trained to perform (sometimes called own-occupation policies), while others require you to be unable to perform any suitable job (sometimes called any-occupation policies).  Also, many short-term disability policies pay up to 100% of your pay while on disability for typically up to 26 weeks, at which time a long-term disability policy may kick in at only 60-70% of income.

Like most insurance policies, disability insurance is something you never wish to use, but you’ll be sure glad to have it if you need it.  Not all companies offer it, but fortunately for my brother, his employer does, and we’re all thankful for it. If your employer does not offer adequate disability insurance benefits, you should consider a private policy. The cost of the policy will depend on the three factors noted above. You can also reduce the cost by opting to have the benefits reduced by the amount of any government benefits you receive.

Build up an emergency fund

Regardless of which type of policy you have, you should maintain a cash reserve to cover any expenses the insurance benefits aren’t enough to cover.  If you have an own-occupation policy, you should consider having at least 3-6 months of expenses in an emergency fund.  If you have an any-occupation policy, consider having 6-12 months of expenses.  In general, the harder it is to qualify for a benefit from your policy, the more you should keep in your emergency fund.

Stay healthy

For some, like my brother, the disability is the result of an accident, but for most—approximately 90 percent—it will be the result of an illness.  There are a number of factors that can influence your likelihood of a disability.  The following lists of factors are provided by the Council for Disability Awareness:

• A sample of factors that increase the risk of disability: Excess body weight, tobacco use, high risk activities or behaviors, chronic conditions such as diabetes, high blood pressure, back pain, anxiety or depression, frequent alcohol consumption or substance abuse.
• A sample of factors that decrease the risk of disability: Maintaining a healthy body weight, no tobacco use, healthy diet and sleep habits, regular exercise, moderate to no alcohol consumption, avoidance of high risk behaviors including substance abuse, maintaining a healthy stress level, and effective treatment of chronic health conditions.

The council has developed a way to measure your risk of disability based on these factors called the Personal Disability Quotient.  To calculate your own Personal Disability Quotient (PDQ), go to: http://www.whatsmypdq.org.  To learn more about risk factors and ways to help reduce your risk, go to: http://www.disabilitycanhappen.org/reducing_chances