Post-Pandemic, Americans Remain Unprepared For Disability

By Jessica Gillespie

As employers increasingly focus on the overall financial wellness of their employees, disability insurance must be part of the conversation — not only during this Disability Insurance Awareness Month, but all year long.

The events of 2020 arguably proved the case for the importance of income protection and financial wellness, and it did lead to an increase in individuals considering or buying life insurance. But even as employers paid out nearly $11 billion in disability benefits pay related to COVID-19, many individuals still aren’t investing in disability insurance. In fact, the opposite has happened.

Ownership of disability insurance has fallen to just 14%, down from 20% in 2019, according to LIMRA’s 2021 Insurance Barometer study. The decline reflects several factors, including job losses on the employee side and a shift in funds by employers compensating for rising health care coverage costs. Prudential’s open enrollment survey found that nearly 60% of workers who said they had selected fewer benefits did so to save on monthly expenses.

Still, the decline in disability insurance ownership has not been entirely pandemic-related, as numbers were headed downward even prior to the health crisis. Only 40% of private workers had access to short-term disability insurance in March 2020, and 35% had access to long-term disability insurance, according to the Bureau of Labor Statistics.

But even among workers who have access to such policies, there’s a disconnect between their financial concerns and how to use insurance products to address those concerns. This is particularly true among younger workers, many of whom are already living paycheck-to-paycheck.

Half of millennials are worried about disability-related expenses, and 47% are worried about their job and income security, according to LIMRA. But Prudential’s data shows that millennials are less likely to own either short- or long-term disability insurance, when compared with older generations.

The Role Of Employers

That generational gap presents an opportunity for plan sponsors and insurance providers to reach out to millennials to educate them on how and why investing in disability insurance could ease their concerns. Disability insurance offers the potential to not only protect their finances, but also reduce stress.

From an employer perspective, disability insurance needs to be an integral part of a well-rounded benefit plan, especially as disability costs continue to rise over time. Disability insurance allows the employee to focus on recovering from an injury or illness without additional stressors. It also encourages them to take the time needed after a disabling event. Without income protection, workers may try to force themselves to return to work before they are truly ready in order to avoid missing a paycheck.

The more that employers can use their benefits package to create a larger safety net for employees, the more valuable their overall benefits package becomes. In addition to disability insurance, a truly holistic benefits package would also include access to workplace life insurance and voluntary benefits such as accident or critical illness insurance.

Open enrollment is an opportunity to educate employees about these programs, but they can also be incorporated into year-round messaging, taking advantage of events such as Disability Insurance Awareness Month. Employers also might consider offering tools to help workers calculate the right type of insurance and policy size for their financial situation. For most workers, that’s about 60% of their income, or the amount they earn after taxes.

Targeted messaging might also focus on issues specific to certain employees. Disability insurance, for example, can assist with maternity care, a benefit that’s often overlooked. Disability insurance provides income protection to new mothers as they recover from the physical impact of childbirth. (It’s worth noting that disability insurance differs from paid family leave — another important holistic wellness benefit that allows parents to bond with, and care for, a new baby.)

Making The Case

Simply offering disability insurance, however, is not enough, as the low rates of participation show. Employers and insurance providers must also invest in education, explaining to workers exactly how disability insurance protects their finances and potentially eliminates a significant source of stress.

That includes the basics of what disability insurance covers, the difference between short- and long-term disability insurance, and who might need it. Employees need to understand their true risk of an illness or injury that prevents them from working.

More than 1 in 4 American workers could miss at least a year of work due to a disability at some point in their career, according to the Social Security Administration. That makes it far more likely that workers file a disability insurance claim than they file a life insurance claim. With the long-term effects of COVID-19 still unknown, it’s more important than ever for workers to protect their income in the case of a long-term illness or other disabling event that leaves them unable to work.

Brokers and producers can help by educating plan sponsors on the value of disability insurance. The key to such communications is to lead with the outcome — a less stressed and more financially secure workforce — rather than simply focusing on a product or solution.

As health care costs continue to rise, supplemental benefits such as disability and other voluntary benefits can address the full breadth of an individual’s financial needs, while also potentially offsetting the high medical costs that aren’t covered in a traditional health care plan.

In addition, employees who take advantage of financial wellness benefits, such as disability insurance, are more likely to rank themselves as physically healthy than those who don’t use such benefits, according to Prudential research. A similar correlation exists on mental health measures.

The Mental Health Connection

Fittingly, May happens to be Mental Health Awareness Month in addition to Disability Insurance Awareness Month. As employers consider both issues, it’s important to realize their interconnectedness, and understand that a truly holistic approach to employer benefits takes them both into account.

While important, offering disability insurance is just one piece of the puzzle when it comes to assisting employees who’ve experienced a major illness or injury. Individuals who experience a disabling event often experience both physical and mental barriers to return to work. A rocky return can create even greater losses, to both the employer and employee.

For employers to prioritize employee well-being (and maximize productivity), they must also help workers create a proper return-to-work plan aimed at reducing any reentry barriers. That reentry plan should include a focus on mental health as well as physical.

Disability insurance remains one of the most overlooked types of policies, but it’s an essential tool for both employers and their employees, and in today’s uncertain world it is more important than ever.

Jessica Gillespie is senior vice president and head of distribution, Prudential Group Insurance. She may be contacted at [email protected].