How Much Protection Do You Need?

About 30 percent of Americans between the ages of 35 and 65 will suffer from a work-impacting issue lasting at least 90 days during their careers, and about 14% of American workers will be disabled for more than five years, according to the Health Insurance Association of America.

Despite these figures, the vast majority of consumers seem to underestimate their need for coverage. A survey conducted by the Consumer Federation of America and The American Council of Life Insurers revealed that 82% of Americans have no long-term disability insurance or believe their current coverage to be inadequate.

Financial Impact to Consider

Not having sufficient coverage has been shown to significantly impact one's financial stability.

The May 2000 Norton Bankruptcy Adviser reported that more than 326,000 families who had filed for bankruptcy protection in 1999 cited an illness or injury in their family as the primary reason for the bankruptcy. This finding meant that the outstanding debts belonging to one in four debtors in 1999 were the result of a disability.

In addition, the U.S. Housing and Home Finance Agency found that 48 percent of all mortgage foreclosures were due to a disability.

Most Common Impairments Discussed

Many people might assume that most cases are the result of a serious injury. However, the National Institute on Disability and Rehabilitation Research found that only 13% of all disabilities are due to an injury. The vast majority are actually the result of a serious illness.

According to the Health Insurance Association of America, the top disabilities resulting in claims are back impairments (18.1 percent), emotional or psychiatric impairments (12.7%) and neurological impairments (11.3 percent).

Other disabilities cited by the Health Insurance Association of America include:

  • Impairments Related to the Extremities: 9.0%
  • Cardiovascular Impairments: 4.1%
  • Diabetes: 3.5%
  • Substance Abuse: 3.3%
  • Hearing Impairments: 2.9%
  • Vision Impairments: 2.6%
  • Blood Disorders: 2.6%
  • Cancer: 2.3%
  • Asthma: 1.7%
  • Other: 25.7%

How Much Coverage is Enough

Now that you know the importance of having this valuable protection, how can you determine how much coverage you will need?

First, you need to determine what your fixed monthly expenses are. These expenses should include your mortgage payment, your utility payments, your car payment, any medical bills and your credit card payments. You also should include funds to cover such necessities as food and gas for the car.

Then, you need to determine your family's total income if you were unable to work. This figure should include your spouse's income, any income from investments and any payments you would receive from your company-sponsored short-term benefits or long-term disability benefits.

The difference between these two numbers - your expenses and your income - demonstrates how much protection you will need.

To assist in selecting coverage, you also should determine how many months you could go without having the additional insurance payments. This time frame will help you decide on the policy elimination period, or how much time after the onset of the disability is required before the insurance payments kick in.

It will help to have a healthy savings account set aside in order to extend this period of time. The longer the policy elimination period, the lower your premium will be.

  Disability Insurance