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Disability income protection insurance allows you to insure your income against
the financial impact of a disabling illness or injury. This type of insurance
can help you prepare for the unexpected for example, the effects of a car
accident, cancer, debilitating arthritis or a stroke and the expected,
including routine pregnancies or recovery from a planned surgery.
You wouldn't think about going without auto insurance. Income protection is also
important it can help you to continue to pay your bills if you have a loss of
income due to disability.
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Mention the word disability and people will likely think of congenital or
developmental disabilities such as cerebral palsy, multiple sclerosis or
accident-induced injuries.
But in the insurance industry, a disability is defined as a medical condition
that leaves you unable to perform the most important aspects of your occupation
and results in a loss of 20 percent or more of your earnings (this is why
insurance companies sometimes refer to disability policies as income protection
insurance). So a disability can be something as common as time off for having a
baby, recovering from surgery or undergoing cancer treatment. Since policies
can vary, individuals should be familiar with their policy to know what is
covered and how the benefits are calculated.
Due to medical advances and ever-evolving work flexibility, it's not necessary
to be totally disabled in order to be eligible for disability benefits. Most
contemporary disability insurance policies provide proportional benefits if you
can only work part time. You're almost always better off financially when
working and receiving a partial disability benefit than if you were just
receiving disability benefits alone.
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Health insurance will cover medical costs, but does not replace lost income.
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Workers' compensation only covers accidents and injuries that occur on the job.
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Your life savings could be drained quickly by the costs of a disabling illness
or injury. The U.S. personal savings rates averaged 10.4 percent in the 1980s,
but in 2005, it had dropped to -0.5 percent. In other words, Americans spent
more than they made, something that has not happened since the Great Depression[1].
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Social Security Disability Insurance only pays a limited benefit for severe
disabilities that are expected to last at least 12 months or result in death[2].
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There are two main types of income protection insurance: short-term disability
and long-term disability coverage.
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Short-term policies provide benefits when you are unable to work for a short
period of time due to an illness or injury for example, while recovering from
surgery or while undergoing chemotherapy treatments. Typically, short-term
disability benefits are provided for 13, 26 or 52 weeks and can help to replace
50 percent to 60 percent of your prior earnings.
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Long-term policies provide benefits when you are unable to work for a longer
period of time due to an illness or injury. Benefits often last until you are
able to return to work, or until the end of the benefit period stipulated in
the policy typically to age 65.
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The cost of coverage varies and is based on the type of policy, insurance
carrier and other factors, but here are some examples:
Group insurance that is purchased by a business as an employee benefit averages
$228 per employee per year for long-term disability and $192 per employee per
year for short-term disability[3]. The employee usually pays nothing
or a small amount for this coverage.
Rates for short-term disability products that are sold directly to employees at
the workplace may benefit from group discounts. For example, a 35-year-old
light blue collar worker could choose a policy that provides a $2,000 a month
benefit for 12 months for a covered disability. The average monthly premium for
this policy would be $58[4].
Here is an example of an individual policy that may be purchased through an
independent insurance agent. A 40-year-old professional man who makes $50,000 a
year would pay about $1,700 a year for a policy that would pay him $2,900 a
month for up to five years for a covered disability.
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The average annual cost for auto insurance nationwide is $867[5].
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The average cost for homeowners insurance is $677[6].
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The annual premium for family medical coverage reached $10,880 in 2005,
eclipsing the gross earnings for a full-time minimum-wage worker ($10,712). The
average worker paid $2,713 toward that premium for family coverage in 2005,
about 26 percent of the total, with the employer picking up the rest of the
cost[7].
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Disability income protection insurance is frequently part of an employee benefit
package, but it may be purchased from an individual insurance advisor or at the
worksite.
When coverage is provided as an employee benefit, the workplace company may own
the policy and be identified as the policyholder. The policyholder makes the
decisions about the type of coverage and provisions offered to employees, and
picks up most, if not all, of the cost of coverage.
When coverage is purchased by an individual directly from an insurance broker or
at the worksite through an insurance carrier, the individual is the
policyholder. In this case, the individual may make all decisions about the
coverage purchased and is responsible for all associated costs.
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Each state has its own insurance regulatory commission, so insurance offerings
may vary from state to state in accordance with the laws of that state.
The National Association of Insurance Commissioners (NAIC) is the organization
of these state insurance regulators. Its website www.naic.org
includes extensive information on insurance regulation, including consumer
information on complaints against insurance companies.
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Unum received more than 412,000 new disability claims in 2005 and paid
$4 billion in disability benefits to individuals and their families[8].
Of all the disability claims received in 2005, 92 percent were approved and
paid; 7 percent involved individuals no longer claiming benefits before
benefits came due, not eligible or not covered under the contract; and only 1
percent were determined not to be disabled under terms of their policies[9].
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Some injuries that occur on the job.
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Injuries or illnesses that are not substantiated by your physician or medical
records.
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Injuries or illnesses that are not covered by the policy.
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According to the Bureau of Labor Statistics, 39 percent of employees participate
in short-term disability benefits and 28 percent participate in long-term
benefits[10].
The short-term disability market includes more than 15 million employees who
work at 212,357 companies in the United States. This coverage generates $2.8
billion in annual premium[11].
The long-term disability market includes nearly 36 million employees who work at
240,357 companies, and the coverage generates $7.8 billion in annual premium[12].
Unum is the leading provider of group and individual disability income
protection in the United States, with more than 11 million working Americans
enrolled in the coverage[13]. The company works with more than 80,000
employers nationwide, including more than 40 percent of the Fortune 500.
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