Disability Insurance Myths and Facts

When people think of insurance, they think of life insurance, like car insurance, like household insurance. They rarely consider disability insurance (DI), but it is an important part of a person's insurance portfolio. The chances of a person suffering from a chronic disability due to illness or injury in working life are very high: about 25% of the population suffers from a disability that threatens their income. However, when people are told about disability insurance, they see it as a cost rather than a way to reduce the risk of losing income. So let's take a look at some of the myths about disability insurance that degrade this very important insurance to the bottom of the list of risk reduction priorities. About 33% of employees have some disability insurance with their employer. For the lucky 33%, the first myth is the belief that this is all the DI coverage they need; however, this is often not the case. Many of the DI Group's principles are very strict and apply only if one is unable to work in every job. This means, for example, that if a surgeon may develop debilitating arthritis in his hands and can no longer operate, but can still do other work, such as teaching, then group policy may not pay off. In addition, if the employer pays premiums in dollars before tax, all benefits paid will be taxable income. As DI pays only between 60% and 66% of their gross salary, a tax on this benefit can reduce net income by more than a third. Both issues make group DI policies less effective alternatives to individual DI policies. And the remaining 67% of identified employees have no replacement income if they cannot work due to illness or injury.

The second myth is that premature death is more likely than disability and loss of income over the years of work. The risk of severe disability due to injury or illness is very high. The risk of a serious disability that could disqualify a person from the age of 20 to retirement at the age of 67 is about 25%. And according to a report by Unum Insurance, 60% of their disability claims are for women! Compare this to the risk of premature death: around 17% for men aged 25-64 and around 11% for women in the same age group.

The following myth implies compensatory insurance for workers with disability insurance. These are completely different products: the first is designed to provide compensation for wages and health benefits resulting from an accident or illness directly caused by a workflow activity. DI provides a replacement salary, usually up to 66% of income for each injury or illness that prevents a person from working long hours. Less than 5% of disability claims are directly work-related and covered by staff compensation; 90% of invalidity claims come from non-employment-related diseases and are therefore not entitled to compensation for workers. The point is that your chances of suffering from a non-work disability that will cause you to lose your job for a long time are at least 18 to 19 times higher than for an accident or occupational disease. Thus, comprehensive employee insurance does not replace disability insurance.

The last myth I want to talk about is the myth that you are too young to take out disability insurance. It turns out that more than 40% of people with disabilities under 50 claim and people under 40 claim almost 14%. As with life insurance, the younger you are when buying disability insurance, the cheaper the premium and the better your chances of being underwritten. In other words, with increasing age, there is a good chance that the insurer will not sign the contract due to the previous conditions or will not assess the contract, which will not increase the premium, which is more expensive according to age.

Now keep in mind that insurers are very conservative when writing disability insurance. This means that different jobs are valued differently and have different risk premiums; some contracts are never underwritten, especially those with a high risk of injury and/or illness in the workplace. People with high-risk jobs often need to obtain disability insurance through specialist carriers with underwriting experience and pricing policies for these individuals. Another important point is that someone must have an income to get disabled. That we can come from a salary or income from self-employment (this must be proven). People without an income or with a fixed income cannot buy DI insurance because the amount of coverage is directly linked to a fixed, current income. This can be problematic in situations where the spouse provides support to the self-employed family's activities, such as marketing, administrative support, or accounting, but is not paid. As there is no separate allowance, this dependent spouse may not receive a DI policy. When a non-working spouse is unable to provide these basic services due to a disability, the primary caregiver must hire or contract someone to provide this support. This means higher costs for the primary caregiver. To minimize some financial risk, it may be a good idea to put the maintenance wife's salary on a market loan or a salary so that underwriting can be considered.

In addition to what I have mentioned, there are many other considerations. These problems include the elimination period, partial disability vs. general restrictions, various supplementary insurances, personal employment policies, and balancing coverage and premiums with others in the insurance portfolio. This requires an agent or financial advisor who has experience with disability insurance products. The purpose of this article is simply to dispel some of the myths associated with disability insurance and to encourage people to consider this insurance as part of a general insurance portfolio.

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