You may not be able to change your luck, but you can control how much a moment of bad luck could impact the rest of your life. David was lucky enough to know this before a stroke ended his career at age 48.
The Council for Disability Awareness (CDA) explains David’s story: He was active and healthy, and he traveled for his job as an IT consultant. Then, a sudden stroke left him disabled, requiring a wheelchair. Though he tried to return to work part-time, he found he couldn’t keep up. Fortunately, he had the foresight to have purchased Disability insurance through his employer.
“Thank goodness we were prepared,” he told CDA. Thanks to good savings and his Disability insurance, David was able to retire early and continue to support his family.
What are the odds a sudden disability could happen to you?
According to the Social Security Administration, more than one in four 20-year-olds can expect to be out of work for at least a year due to disability before retirement age.
When that happens, it’s not only the injury or illness that causes stress in people’s lives, but the financial fallout that comes with it. Here’s how Disability insurance can become part of your financial wellness plan.
The Cost of Disability
Disabilities can range from a career-ending stroke like David’s to a straightforward broken limb that needs a few weeks to heal. The cost of a disability can vary as widely. But there’s no doubt that it can be financially catastrophic.
A 2018 academic study found that 66.5% of all bankruptcies were connected to either the cost of medical care or time out of work because of a medical issue.
“A disability can be devastating to one’s financial wellness. Depending on the severity and length of the disability, one’s finances for the rest of their lives could be impacted,” says Liz Supinski, director of research projects and insights for the Society of Human Resource Management.
Here are a few ways the cost of disability can add up:
Loss of Income
Even a minor injury can interfere with your ability to do your job. You may have certain, limited protections in place, like paid sick days. But most employees only have a week or so of those each year—which would run out when used for recovery time. The Family and Medical Leave Act may protect your job status for 12 weeks when dealing with a medical issue, but it doesn’t protect your income. Many workers must go without a paycheck while they can’t work.
“Even shorter periods of disability could wreak havoc on one’s financial wellness,” says Supinski. “The individual would likely have loss of income—full or partial. Depending on how much emergency savings they had, this could impact their ability to pay their usual expenses, much less the potential additional expenses due to the disability.”
Those savings won’t go far for many people.
- A 2020 Pew Research Poll found that 53% of Americans don’t have enough savings to cover three months of income.
- In a Bankrate Poll from the same year only 41% of respondents said they could draw on savings to cover an unexpected $1,000 bill.
Unexpected bills become the norm when you’re facing a sudden disability. Between doctor visits, hospital stays, therapy, and more, having a disability is expensive.
A study in the Journal of General Internal Medicine found that more than 50% of cancer survivors have issues paying medical bills, experienced financial distress, or delayed or put off medical care because of the cost.
Not being able to work isn’t the only lifestyle change that happens when people experience a disability. An academic study found a connection between disability and poverty that exists worldwide. The reasons go beyond medical expenses. Specialized housing, transportation, services, and more contribute to an increased cost of living that ranges from $1,170 to $6,952 each year.
Those financial pressures often force people to make choices that compromise their health. CDA shares how that is what happened to a woman named Nancy. She returned to work following a stroke after just one month. She couldn’t afford the loss of income—even though it was much earlier than her doctors would have liked.
“Nancy’s early re-entry to the workforce delayed her full recovery, and also made her recovery process more difficult,” reports CDA. “Constantly in pain, Nancy struggled to complete a full day of work. Many months went by before Nancy regained the strength and energy she experienced before the stroke.”
How Disability Insurance Supports Financial Wellness
Short- and Long-term Disability insurance provides income protection. That helps ease the financial burden of disability.
Short-term Disability insurance covers a percentage of lost income for a set period of time, typically 60% of income for around six months.
Long-term Disability insurance also covers an average of 60% of lost income. It usually requires a three- to six-month waiting period, and has a maximum payout per month.
“Disability insurance provides a level of protection so they have less risk of overwhelming financial impact due to a disability that might prevent them from working and otherwise making an income,” Supinski says.
“Financial wellness” is a way to describe your financial health. It includes how ready you are to weather a financial crisis. Here are a few ways to include Disability insurance in your financial wellness plan.
Understand the Coverage You Have
When starting a new job, it’s easy to feel overwhelmed by a benefits package and forget what’s even in it—until you need it.
When you’re filling out new employment paperwork, Short-term and Long-term Disability insurance are just boxes on a form. Most people either check them—or don’t—without thinking much about it.
What should you be thinking about? There are details that differ in Disability coverage. Good questions to ask include:
- What percentage of your income is covered, and for how long?
- Is the income taxable?
- Understand what other insurance policies or protections are in place.
Also, understand what other insurance policies or protections are in place and how they work together to cover you. Accident insurance, for example, may pay you a lump sum in the case of an injury, which could be a big help. On the other hand, Social Security’s disability coverage basically only covers total disability, which can leave you with a big coverage gap.
“Social Security basically only covers total disability where you cannot work at all anymore,” explains Goodman. “Even then, it usually takes at least three tries for people to get disability from Social Security.”
According to the Social Security Administration, it can take three to five months to get a decision on a disability application. Multiply that by three tries, and that’s a long time to go without money coming in. That’s where Short- and Long-term Disability insurance can help cover the gap.
In the case of a serious illness or an injury, having coverage you can rely on can be a lifeline for families.
Adjust Your Coverage as Needed
Your financial needs will change throughout your life, and so will the role of Disability insurance. As your obligations grow and others begin to depend on you, the need for adequate coverage grows as well.
Consider everything depending on a 30-something worker who earns the primary income for a family that includes kids, a mortgage, and car payments. Should an illness or injury come along and interfere with that parent’s ability to work, there’s a lot on the line.
In comparison, a person in their 20s who lives with their parents might require much less coverage.
Likewise, your needs will change over the course of 10, 20, or 30 years. Your coverage requirements might decline again later in life when your mortgage is paid off, children are financially independent and retirement plan is well funded.
If you have a car, you know you need car insurance. If you have income, you can think of Short- and Long-term Disability insurance like car insurance, but for your income.
After all, your income is often the most important part of your financial wellness during good times. It makes sense to protect it, so you can remain financially stable no matter what comes your way.
Disability Insurance Calculator
Disability Insurance is an important resource, but it can be confusing to determine how much coverage you may need. This calculator can help you assess and determine your needs in 3 simple steps.
This informational material shall not be considered financial advice. The Hartford assumes no responsibility for any financial, investment, or tax-related decisions. Those seeking resolution of specific financial, legal, tax, or business issues, questions, or concerns regarding this topic should consult their own financial, investment, tax, legal, or other business consultants, advisors, or other professionals.