Thrifty Thinking: Why Disability Insurance Now?

Laura Hahn, Director of Marketing and Consumer Engagement Strategy

The Guardian Life Insurance Company of America, New York, NY 10004

 

When we’re young, in our 20s and 30s, we often think we’re immune from illness and injury. It’s reflected in the numbers: Only about a third of people ages 21-40 have disability insurance.

However, unless someone is independently wealthy, it could be one of the most important forms of insurance to have, especially at a younger age. There are many who fall into this age group – particularly those in the financial, medical, or legal professions – who’ve invested a great deal in their education, may still have student loan debt to repay, and need a level of protection to meet their financial obligations in case of a disability.

None of us plan on becoming disabled, but the sobering reality is that nearly one in four Americans will become disabled before they retire. Most disabilities are not caused by accidents but by muscle, bone, and joint disorders, as well as cancer, heart disease, diabetes and other illnesses. And that’s precisely why individual disability insurance is an integral part of a comprehensive financial safety net, especially for people who are in their peak earning years and who might not be able to afford the financial impact of a serious disability.

 

Disability insurance helps replace income lost due to illness or injury, and buying disability insurance while young and healthy means the cost is less expensive than purchasing when older – much lower than what people believe. The cost goes up almost 40 percent when a 30-year-old waits until age 40 to buy disability insurance. Purchasing disability insurance young lets you lock in your costs so rates can’t be increased, and groups like students and medical residents may qualify for a discount.

 

In the Worker Disability Planning and Preparedness Study conducted by the Council for Disability Awareness, nearly nine in ten workers (86 percent) surveyed believe people should plan in their 20s or 30s in case an income-limiting disability should occur, however only half (50 percent) of all workers have actually planned for this possibility and fewer than half (46 percent) have even discussed disability planning. So why don’t they? Common beliefs that keep people from purchasing disability insurance:

·      “I’m healthy, it can wait.”

·      “No way I’d ever be unable to work.”

·      “No rush, it’ll cost the same whenever.”

·      “I have too many expenses already.”

·      “I can depend on Social Security disability benefits.”

According to the Council for Disability Awareness (CDA) and the Social Security Administration, the occurrence of disability among young adults is high. They say one in four 20-year-olds will become disabled at some point before they retire. Average disability claims last from 31.6 to 34.6 months (nearly three years) and one in eight workers will be disabled for five years or more during their working careers.

A 2013 study by the National Research Council and Institute of Medicine (NAC/IOM) showed, not just that Americans are getting sicker, but that young Americans are getting sicker. For example, the overall rate of stroke is increasing for young and middle-aged people, those between 20 and 54 years of age. A study published in the Journal of Neurology looked at stroke trends in the Greater Cincinnati area between 1999 and 2005. It found that the rate of stroke in the 20-to-54 age range increased from about 13 percent to 19 percent.

For those in their 20s, about one-fifth of disabilities are caused by accidents. For people during their prime working years, 90 percent of disabilities are caused by illness or disease. Most disability claims fall into certain top areas, leading with musculoskeletal/connective tissue disorders, such as back and neck pain, joint, muscle and tendon disorders, or foot, ankle and hand disorders. Closely following is cancer, mental disorders such as depression and stress, and cardiovascular and circulatory disorders.

 

The financial losses that can result from an injury or disability that requires someone to leave work can be devastating. According to a 2010 study by the CDA, 65 percent of working Americans said they could not cover normal living expenses even for a year if their employment income was lost; 38 percent could not pay their bills for more than three months. According to Social Security Administration estimates, 100 million U.S. workers are without private disability income insurance. People may think they will be able to rely on Social Security benefits for disability, but those benefits may not be available and often don’t meet people’s income needs.

We’ve seen the stories of famous people who’ve had their careers derailed early due to disabilities caused by unexpected illnesses or accidents—but there are countless stories of average 20- and 30-somethings who are not famous, but suffered because they did not have the disability insurance that could have protected them financially.

Young adults in their 20s and 30s may be surprised how affordable disability insurance is when purchased early. Some insurance carriers, including Guardian Life, even offer no-obligation online quotes.

 

The CDA notes that less than five percent of disabling accidents and illnesses are work-related, meaning it’s likely a disabling factor is something that could happen outside of work and it’s likely to be something unpredictable. Purchasing disability insurance when you’re young and healthy means costs are low and locked in, and you’re protected before anything urgent, such as a diagnosis, can have significant consequences—something 25 percent of workers will experience in their lifetimes.

Disability insurance can help reduce financial stress at a time in their lives when it’s really important—and it’s something that’s better to obtain as a young adult.

About Guardian

The Guardian Life Insurance Company of America (Guardian) is one of the nation’s largest mutual life insurers, with $6.8 billion in capital and $1.3 billion in operating income (before taxes and dividends to policyholders) in 2014. Founded in 1860, the company has paid dividends to policyholders every year since 1868. Its offerings range from life insurance, disability income insurance, annuities, and investments for individuals to workplace benefits, such as dental, vision, and 401(k) plans for businesses. The company has approximately 6,000 employees and a network of over 3,000 financial representatives in more than 70 agencies nationwide.  For more information about Guardian, please visit www.guardianlife.com.