- One-in-four of today’s 20 year olds will become disabled before reaching age 67.1
- Only 34 percent of private sector workers have access to long-term disability benefits through their employer, and 40 percent have access to short-term disability benefits.
- Workers who are considered “full-time” are more likely to be covered—49 percent for short-term disability, and 44 percent for long-term disability.
- Employees of small companies are much less likely to be covered. At companies withfewer than 50 workers, 24 percent have access to STD, 18 percent have access to LTD. Part-time workers are much less likely to have income protection than full-time workers. Less than 10 percent of part-time workers have access to employer sponsored long-term disability. Only about one in eight part-time workers have access to employer sponsored short-term disability. Twenty-seven million Americans are considered part-time workers.
- Most people who have disability insurance obtained it through their employer. Our 2014 America’s Income Protection Picture study found that less than 20 percent of people with disability insurance obtained it outside the workplace.4 Other studies find the percentage to be even lower. Overall, we estimate that less than five percent of the American workforce owns a disability insurance policy they obtained outside the workplace.
- Almost nine million American disabled workers currently receive SSDI benefits. Most have no other source of income.
- Social Security Disability Insurance (SSDI) benefits average $1,166 a month – which is just below the 2015 federal poverty line for an individual.
- SSDI replaces less than half of the income of anyone earning over $30,000 a year. Roughly 75 percent of full-time workers in America earn more than this threshold, and are therefore at risk of severe income loss if they experience a disability.
- SSDI is difficult to qualify for. The application process can take months or even years, and applications are generally only approved for disabilities expected to last a year or more.
What Can Cause a Disability Claim?
The most common cause of short-term disability claims is generally a happy one: Pregnancy. Most short-term disability plans provide for six weeks of benefits for a routine pregnancy. Injuries and joint disorders are also a major cause. The most common causes of long-term disability claims are back problems, other joint and soft tissue pain, cancer, heart disease, and mental health.
What Are the Solutions?
- For most working people, disability insurance is the only realistic long-term source of replacement income. Depending on their savings and obligations, some people can withstand a short-term disability without income protection insurance—but most cannot. A recent study by the Federal Reserve found that 47 percent of Americans could not handle a $400 emergency.
- Employers can offer employer-paid income protection benefits for relatively little cost, especially when compared to the cost of health insurance and retirement benefits. Government studies show that providing disability benefits costs an average of 11 cents per hour of payroll.
- Employers can offer income protection benefits that are fully paid for by the employee. This provides employees with choice, and is generally more affordable for the employee than purchasing individually, but does not add to employers’ benefits costs. When voluntary coverage is offered, benefits education is critical. Insurers, brokers and employers must work together to ensure employees understand the importance of income protection.
- Employer group plans can be tailored in many different ways, but most replace 50-60 percent of the employee’s salary. In some cases, the employer can pay a certain percentage, and also provide the employee the option to pay for additional coverage.
- Employees who have employer-sponsored protection may still need more than their group plan provides. Individual insurance can be coupled with group plans in order to provide the adequate amount of coverage.
- Working consumers can also consider insurance products like Critical Illness Insurance and Accident Insurance. While this coverage is more limited, it is an affordable way to provide some income protection.
- Financial advisors, insurance agents and others providing financial advice must make sure to discuss income protection with their clients. Without their incomes, most people could not accomplish any of their financial goals. Unless an individual does not need their income, no financial plan is complete until income protection is included.
- Financial writers must remember to include disability insurance when discussing how to create a solid financial foundation.
America’s (Beauty Industry) income protection gap is a serious concern for businesses, for the public as a whole, but most importantly for those individuals and families who are uninsured.
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1. U.S. Social Security Administration, Basic Facts, October 2015
2. Bureau of Labor Statistics, Employee Benefits Survey, March 2015
3. Bureau of Labor Statistics, Employment Situation Summary, April 2016
4. Council for Disability Awareness, America’s Income Protection Picture, 2014
5. Department of Health and Human Services, Federal Poverty Guidelines, 2015
6. Bureau of Labor Statistics, Weekly Earnings of Wage and Salary Workers, January 2016
7. U.S. Federal Reserve, Report on the Economic Well-Being of U.S. Households, May 2015
8. Bureau of Labor Statistics, Employer Costs for Employee Compensation, December 2015