Value of Disability Insurance Coverage

man with disability insurance

My own father worked in a lumber mill as the edgerman and had the muscles in his back and neck torn loose when one of the pieces of equipment malfunctioned. He was placed on disability due to the severity of the accident. Not able to work for many months and having no disability income insurance when his savings were depleted, he prepared to sell his little dairy farm and go on social security disability for the rest of his life. However, when he went to apply for his Social Security benefit, he was advised since he could probably be retrained to do clerical work, he could only get partial disability payments which would be paid only for a short period of time. It was for less than 25% of his regular pay and would only postpone the inevitable foreclosure on his farm. His fellow workers seeing his plight all agreed to give up some of their own sick leave pay to assist Dad so he wouldn’t lose his dairy farm. As good fortune would have it, a new position opened up at the mill for a debarker operator which allowed a worker to run a machine while sitting down, pulling levers to operate the equipment. With the help of his union and his great work ethic reputation, the mill owner offered the job to Dad and he was able to go back to work thus maintaining his own dignity and self-worth–one moment a perfectly healthy strong worker and the next unable to take care of himself or his family needs. It never occurred to him one moment he would be a productive producer and then in the blink of an eye become a full-time consumer.

Magnitude of Problem

Most of us underestimate the risk of being disabled–64% of wage earners think their chances are only 2%, when in reality the chance of becoming disabled for 90 days or longer is about 30%. In our living-from-paycheck-to-paycheck world, it is no wonder disability causes foreclosures 16 times more often than death does. Medical bills contribute to over 60% of personal bankruptcies and also contribute to more than half of all home foreclosure filings. In a survey conducted by researchers of homeowners facing foreclosures in Florida, Illinois, New Jersey, and California, in nearly half of the 6 million homes up for foreclosure homeowners claimed medical issues were at least part of the cause of foreclosure. (Source:

Take a look at some specific causes of disability given by HIAA Source Book of Health Insurance Data 1999-2000:

  • Back 18.2%
  • Emotional/Psychiatric 12.7%
  • Neurological 11.3%
  • Extremities 9.0%
  • Cardiovascular 4.1%
  • Diabetes 3.6%
  • Substance abuse 3.3%
  • Hearing 2.9%
  • Vision 2.6%
  • Blood Disorders 2.6%
  • Cancer 2.3%
  • Asthma 1.7%
  • Others 25.7%

It is apparent from this chart that disability comes from many different causes, so it is difficult to say where one might be more vulnerable to disability. Just because an individual may be an artisan doesn’t mean he or she is immune to diabetes or asthma or that a truck driver is immune to vision loss.

With there being so many different types of insurance coverages needed because of our life styles, it is sometimes a choice between two or more options as to where we will allocate our premium dollars. Those decisions need to be made after we have reviewed the best information available to us.

Several statistics point out the glaring reality of having proper insurance coverage in effect for the actual possibility of loss. According to the U.S. Housing and Home Finance Agency, only 3% of home foreclosures are due to the death of the income provider while 48% of all foreclosures are due to disability. It doesn’t do any good to have a life insurance policy available to cover a mortgage if the owner becomes disabled and can’t make the mortgage payment, or if the owner has a major medical health insurance plan in force but falls off a roof, becoming a parapelegic. It was a common remark in my insurance career to hear someone say about an individual becoming disabled, “How tragic that the heart attack only did half its job.” Rather harsh, but to see someone who has been actively engaged in earning a living suddenly become unable to financially take care of himself is really discouraging. In my insurance selling career, when it came to getting people to discuss disability insurance as a foundation for other insurance, it was very apparent most people suffered from what I would call the illusionment of invulnerability–it can happen to someone else but not to me. “I’ll be alright.” The 2000 Consumer Federation of America and the Americal Council of Life Insurers survey showing 82% of the people have no long term disability insurance, or believe their coverage to be inadequate, bears out my day to day observation. ( So what can be done to alleviate this dilemma?

Government solution

As with so many other societal issues, we look to the government to solve the problem. Social Security Disability offers monthly payments, but the requirement that you must be unable to participate in gainful employment either by present ability or retraining is so stringent most applications are rejected. It is felt that 90% of applicants for SSDI face negative repercussions while waiting for their award, which includes bankruptcy, missed mortgage payments, savings accounts depletion, foreclosure, and having to move in with others or become welfare recipients. Sobering picture to say the least.

Private Insurance solution

A quick search of the internet reveals there are many private companies one could go to in order to find a solution to their disability income needs. One such site is where 10 companies have been identified as being excellent sources for disability insurance. It will pay you to shop around because this is a wide open industry with companies specializing in different areas of interest. You will probably find that premiums fluctuate between companies. This is due partially to difficulty in actuarially being able to determine the length and severity of a disablement. Life insurance death benefits are easily determined and established prior to their being used, while disability income benefits are established based normally on a monthly payment schedule which may only be needed for a short period of time, or to age 65 or lifetime. Severity and longevity are two factors along with occupational hazards which must be taken into account when trying to establish a premium which will cover income benefits and still allow the company to maintain profitability.

Self-Insure solution

If an individual had the discipline and discretionary income to set aside a portion of his or her present income, this would be a viable solution to this problem. However, another big factor is time. Do you have the time sufficient to allow you to develop this nest egg? Even if you did, how do you determine the amount needed?

Still the best solution is to band together with others under one company where each paying a premium allows sufficient reserves to be accumulated to indemnify those who become disabled.

The men who sacrificed part of their sick pay for my Dad achieved the goal of taking care of one of their own, and fortunately for all concerned, others did not become disabled where resources would not have been available to be used so benevolently.

In the words of the Fram oil filter mechanic of many years ago, one has the choice to pay me now or pay me later. You have to decide.

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