Shopping for Financial Security: All Workers Need Disability Insurance, but Where Should They Get It?

LIFE Foundation Offers Five Tips for Evaluating Disability Insurance Coverage Options

Washington, D.C. - May 30, 2007 / PRNewswire / – When making a significant purchase, whether a new car or a flat screen TV, most Americans carefully study the options so they can make an informed decision. The same should be true when it comes to purchasing protection for what may be the most valuable asset of all – the ability to earn an income. To coincide with Disability Insurance Awareness Month this May, the nonprofit Life and Health Insurance Foundation for Education (LIFE) offers a buyer's guide to help Americans better understand their options for purchasing disability insurance, a critical product which ensures that you can support yourself and those you love even in the event of a disabling illness or injury.

"Nearly one out of every three workers will suffer a disability lasting three months or more at some point in their career, yet studies show that most Americans couldn't afford to live without their paycheck for even one month before financial struggles would start to mount," said David F. Woods, CLU, ChFC, president of the LIFE Foundation. "Whether purchased individually or through work, the right type and amount of disability insurance can protect against this scenario. It's in your best interest to do your homework to make sure you fully understand your options and get the coverage that's right for you."

Working Americans can generally obtain disability insurance coverage from three primary sources: the workplace if their employer provides a group disability benefit, a privately purchased individual policy, or government-sponsored programs such as Social Security Disability Insurance or Worker's Compensation. When available, group coverage can provide much-needed replacement income in the event of a disability, but may not always provide as much coverage as an individually purchased policy. Social Security and Worker's Compensation can also provide financial relief in the event of a disability, but there are holes in these government safety net programs. Only about 39% of the 2.1 million workers who applied for Social Security Disability Insurance benefits in 2005 were approved. And those who were approved get an average benefit last year of just $938 monthly – hardly enough to replace the average worker's income. Workers Compensation will cover work-related disabilities, but only around 10% of disabling accidents and illnesses are work related.

Savvy insurance shoppers should consider the following five tips from the LIFE Foundation when deciding which form or combination of disability income protection is right for them:

Calculate the real costs of disability. Disability insurance can replace a substantial portion of income lost when you become ill or injured and can't work. To determine how much disability insurance you may need, visit the LIFE Foundation's disability insurance needs calculator at www.life-line.org/disabilitycalculator.
Read the fine print – know exactly what will happen if disability strikes. It pays to know the specifics of the group coverage offered through your employer. Your company's benefits or human resources office can explain if their policy covers short-term or long-term disabilities, or both. Be sure to ask about what triggers the policy – is it the inability to do your specific job or to do any job at all – your policy's waiting period for receiving benefits, whether there is a monthly payout cap, and how long benefits will last.
Remember Uncle Sam – weigh the tax implications. If your employer pays your group disability premiums, you'll generally be taxed on your benefits, which can significantly reduce the amount you'll receive. Individual policies usually work in reverse – you pay premiums with after-tax dollars but the benefits are tax-free.
Take a realistic snapshot of your age and health status. If you are older or have health problems, employer-provided group disability insurance can be easier to qualify for and more affordable than individual policies, which typically have stricter underwriting rules.
Factor in your career path and goals. Employer-provided group coverage can be a valuable benefit but the policy won't transfer with you if you take a job with a different company or decide to retire. Individual coverage goes where you go.

For additional information and other helpful tips, visit the section of LIFE's website dedicated to disability insurance at www.life-line.org/disability.

About LIFE

The Life and Health Insurance Foundation for Education (LIFE) was founded in response to the public's growing need for information and education on life, health, disability and long-term care insurance. LIFE also seeks to remind people of the important role insurance professionals perform in helping families, businesses and individuals find the insurance products that best fit their needs. To learn more about these topics, please visit www.life-line.org.