It's May, which means it's DIAM, or Disability Insurance Awareness Month, the one time of year that a very crucial financial insurance tool that goes grossly overlooked by many finally gets a little bit of play. We've not spent much time talking about disability insurance here on the Insurance Pro Blog, and that's due in large part to time constraints. This month however, we've made a little resolution to highlight this product.
Why is Disability Insurance So Overlooked?
This has long been a frequent question among the financial press. The odd thing is, despite everyone's rampant recommendation that everyone buy disability insurance and buy as much as they can get, the product remains grossly under-sold and/or under-bought (depends on how you look at it I guess). There are a multitude of statistics stating that only 30% have coverage. Numerous theories exist for the reason behind the lack of coverage they include:
- Far fewer carriers in the market from a few decades ago
- Stiff underwriting practices leading to too many modified, rated, or declined cases
- Expense of the coverage puts a lot of people out of the market for it
- Difficulty of many clients to grasp the concept of being unable to work and earn a living
- Lack of compensation for the product
- Complexity of learning the product
And the list goes on a little more. We're going to take time to attack all of this as the month of May rolls on.
Why So Important?
You'll find no short supply of people recommending you buy disability insurance (I've personally run across lots of prospect looks for it due to a recommendation from the financial press and other advisors who don't sell insurance). The simple answer is that most people (including us) believe that your income is the foundation of any financial plan you could build 99% of the time. Sure there are people who were born into a situation of wealth that makes the need to earn an income a secondary consideration at best, but for most people, income equals admission to the ball game when it comes to creating your lifestyle. Without it, you've got nothing.
Likelihood of Needing the Coverage?
I hate this question, but the statistics are deeply in favor of finding coverage. Roughly 1 out of 3 working men and 1 out of 2 working women between the ages of 20 and 65 will go out of work due to illness or injury for at least 90 days (the trigger for a long term disability) at some point in their working life. You are way more likely to suffer a long term disability than die the entire time. Average duration of a long term disability is around 2 years. And if the likelihood isn't enough to motivate action the consequences might: 50% of all mortgage foreclosures and 50% of all personal bankruptcies are caused by long term disabilities.
Details, Details, Details!
A product that is hugely important due to it's purpose is also hugely important to have the correct features. Disability insurance has a somewhat bad reputation for it's abuse in the group insurance market (denied claims engender ill will). Some agents avoid disability insurance for this very reason. This is another topic that we'll dedicate a lot of time to this month. By the end of the month, if you're sick of disability insurance don't worry, we probably will be, too.