Disability Insurance and the Coverage Gap

by Jim Farden, CLU

Many people buy life insurance after giving serious thought to how their death might affect their families' living standards. But, few give the same level of consideration to disability insurance. Ironically, the typical worker faces a much higher risk of extended disability than of premature death. But, disability insurance remains one of the most overlooked and misunderstood forms of insurance.

Disability is behind nearly half of all mortgage foreclosures and a significant number of personal bankruptcies. But, most workers don't see disability insurance as a high priority because they assume they're already covered through Social Security, state-mandated workers compensation or employer-provided group plans.

To get the word out about disability insurance, the Life and Health Insurance Foundation for Education (LIFE) launched Disability Insurance Awareness Month (DIAM) in May. At that time, LIFE kicked off an aggressive outreach to the consumer print media, public service radio announcements, consumer print advertising, and a radio media tour. The group's Website is also featuring disability insurance at www.life-line.org. The awareness-building efforts of LIFE and other leading industry associations will be complemented by aggressive sales and marketing efforts on the part of many leading insurance companies and individual producers.

Education is crucial because there are numerous holes in the safety net of coverage. Only about 39% of the 2.1 million workers who applied for Social Security disability insurance benefits in 2005 were approved. Those who were approved got an average benefit last year of just $938 monthly, which is hardly enough to replace the average worker's income. Workers Comp covers only work-related disabilities, while 90% of disabling accidents and illnesses aren't work related.

Employers provide much needed coverage, but only 36% of all full-time employees have access to long-term disability insurance through their employers, according to the Actuarial Foundation. Individually owned disability insurance isnÕt making up the difference. There are fewer than 6 million individual disability policies in force, versus approximately 170 million individually owned life insurance policies.

The bottom line is that there is a tremendous gap between the need for disability insurance and the coverage Americans carry. Most of America's 150 million workers lack adequate disability income protection, even though about one in five can expect to be disabled for one year or more before retirement.

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Jim Farden, CLU is Disability Income regional vice president for Principal Life Insurance Company. For more information, e-mail Farden.Jim@principal.com or call 866-704-9357. Insurance issued by Principal Life Insurance Company a member of the Principal Financial Group, Des Moines, IA 50392. Disability insurance has exclusions and limitations. For costs and complete details of the coverage, contact me. For Producer Information Only. Not for use in sales situations.