DAVID BOTTOMS: Disability Insurance: The Importance of Preparing for the Unexpected

Prior to COVID-19, most of us paid scant attention to the prospects of extended illness or disability. Obviously, that has now changed.

As a result, during the past three years, as awareness of our human fragility has come into focus, I have received more than my fair share of calls from individuals facing the real or perceived prospect of disability without the protection of adequate disability insurance. They are very discouraged when they contact our office to secure disability insurance only to learn that, since they are no longer healthy, they are no longer insurable.

Insurance is, almost by definition, protection against an unexpected and unquantifiable loss; however, it is human nature to focus first and foremost on insuring against those losses that we most reasonably expect to experience. As such, medical, dental, and even life insurance, tend to become the primary focuses of attention because, to a degree, everyone knows that those are plans they will use them at one point or another.

Disability insurance, on the other hand, is an insurance product that protects against a tremendous potential loss that most people assume will never happen to them. Unfortunately, even prior to COVID-19, disability was an all too prevalent reality in our society.

According to the Council for Disability Awareness, a typical female, age 35, 5'4", 125 pounds, non-smoker, who works mostly an office job has a 24% chance of becoming disabled for 3 months or longer during her working career. For a similarly healthy 35 year old male, the chance of an extended disability is 21%. Perhaps even more concerning is the fact that the National Association of Insurance Commissioners, the government oversight board for America's insurance industry, confirmed in a recent study that one in eight workers will be disabled for five years or more during their working careers.

My bet is that the facts above may come as a surprise to you, but I can attest that, having worked early in my career for the nation's largest disability insurer, they are all too real. The good news is that disability insurance is quite affordable within the context of the broader employee benefit plan budget. To put this in perspective, the average medical insurance premium is somewhere around $400 per month per employee; the average monthly premium for a group disability plan is somewhere in the neighborhood of $40 per employee.

That said, as a result of the financial pressures associated with medical premium inflation and the dictates of the Affordable Care Act, many employers have begun to reduce their contribution to ancillary benefit plans, including disability insurance. Many disability plans been converted to employee paid plan options. This, in and of itself, is not a bad thing. In fact, there can be some tax benefits to making the disability program employee paid.

The concern is that, when a disability plan is voluntary, many employees will choose not to enroll. Those employees often choose not to enroll because of very real pressures on their household's cash flow and their expectation that disability insurance is an insurance product they will never use. As an employer, it is important that you, first and foremost, recognize the importance of disability protection and ensure that your employees are similarly educated on the importance of enrolling in disability insurance, before they need it.

To be sure, employers cannot be expected to provide for every need their employees may experience. That said, in the case of disability insurance, it is, at a minimum, important that employers provide an avenue through which employees can elect protection for themselves and, at best, serve as an advocate within their organization to ensure that employees fully understand the importance of electing disability insurance protection.

Too often, without adequate employer advocacy, employee recognition of the need for disability insurance arises at the point at which the individual is uninsurable due to a variety of reasons.

Unfortunately, as the adage goes, "you can't insure the burning house."