Disability & Insurance Market Outlook 2024
By: Brian O’Connell
Like many insurance policies, Americans are indifferent about disability insurance until they need it – and many do.
According to the U.S. Social Security administration, 25% of U.S. citizens 20 years of age will sustain a disability before reaching retirement age. Yet a separate report from LIMRA, a financial services industry research and analysis company, shows that 46% of U.S. adults say they “need some sort of disability insurance.” Yet, currently, only 18% say they have it—and that 18% figure may be too high.
With July signaling Disability Pride Month and the anniversary of the Americans with Disabilities Act falling on July 26, let’s examine the issue more closely and see how it impacts the disability insurance market.
Disability Insurance Explained
Unfortunately, people who sustain a disability that makes them unable to work and earn an income have a steep hill to climb. According to the National Disability Institute, U.S households with one adult with a disability need 28% more income to maintain a “similar standard of living than households without an adult with a disability.” That leaves many Americans with disabilities no choice but to dig into their personal savings or raid their retirement funds to meet their daily expenses.
That’s where disability insurance can help.
“Insurance companies cover a wide range of disabilities, including physical, cognitive, and invisible,” says Emily Trevino, senior managing partner and co-founder at Texas-based Wise Insurance.
Trevino breaks down disability categories as follows:
— Physical disabilities include blindness, deafness, mobility impairments, and chronic illnesses.
— Cognitive disabilities involve intellectual or developmental conditions like autism, dyslexia, and Down syndrome.
— Invisible disabilities refer to conditions like chronic fatigue syndrome, fibromyalgia, and mental health issues such as anxiety or depression.
“For example, a physically disabled individual may receive coverage for wheelchair ramps, handicap-accessible vehicles, and in-home care,” Trevino notes. “Someone with a cognitive disability may get coverage for speech therapy, occupational therapy, and specialized education services.”
People with invisible disabilities may receive coverage for counseling, medication, and medical devices. “In all cases, insurance aims to provide disabled individuals the means to maximize health, independence, and quality of life despite facing significant and often long-term impairments,” she adds.
Disability Insurance Coverage
Individuals with disabilities have several options for health insurance that provides necessary medical care and covers lost income if the individual can’t work.
“Private insurance plans like those obtained through employers typically provide disability coverage, though pre-existing condition exclusions were common until recently,” Trevino says. “Government programs aim to fill coverage gaps, as well.
For example, Medicaid provides health insurance for low-income individuals, including those with disabilities. “Eligibility depends on income, disability status, and state of residence,” Trevino notes. “Medicare also covers certain medical needs for people with disabilities, though typically only for those over 65 or with end-stage renal disease.”
In the last decade, the Affordable Care Act made private insurance more accessible by prohibiting pre-existing condition exclusions. “However, disability-related treatments and services may still require high out-of-pocket costs even with insurance,” Trevino adds. “Supplemental Security Income and Social Security Disability Insurance provide cash benefits for people with disabilities to help pay for living expenses, including healthcare.”
That means Medicaid, Medicare, and ACA marketplace plans are all potential options for health coverage for people with disabilities. “A combination of insurance programs and government benefits may be required to achieve comprehensive, affordable healthcare for this population,” Trevino says. “With the range of possibilities, expert guidance can help individuals determine the optimal solution based on their unique situation and needs.”
Cost Issues and Impactors
Each insurance company and each disability policy is different, so policy costs are different, too. “The definition of disability, inside the policy, is what determines if someone is disabled,” says Michael Silverman, founder and president of Silver Lining Insurance Agency in New York, N.Y. “By and large, the individual’s specific occupation is the question to review when determining coverage.”
Consequently, that means disability income policy premiums are based on what the insured person does for a living, how much the insured person earns, the insured person’s age, and the state of the insured person’s personal health.
‘In many states, the policies are also based on gender,” Silverman says. “Women are significantly more expensive for disability income coverages than men, as opposed to life insurance, in which men are more expensive.”
Insurance companies may require certain medical exams to secure this coverage, although most states that “there is no pre-existing condition clause for health insurance,” Silverman notes.
While each state and each insurer usually has its own pricing formula, consumers can expect to pay roughly between 1% and 3% of their average annual salary for decent disability insurance coverage. That means if you make $100,000 annually, your policy may cost anywhere between $1,000 and $3,000 annually.
Disability insurance applicants may still qualify for traditional life insurance, such as term life or final expense, even with that disability. “While term life and whole life policies often offer death benefits from $100,000 to $500,000 or more, final expense insurance typically provides coverage between $2,000 and $50,000,” says Alex Schlesinger, founder & CEO at Active Mutual in Forest Hills, N.Y. “However, if your disability makes it difficult to qualify, you should consider no medical exam options such as simplified or guaranteed issue.”
Regarding worker’s compensation, the employer is usually liable if someone sustains a disability due to an accident at work. “If there is workers’ compensation coverage in place (required in most states), then the carrier for the company will take on the expenses,” Silverman says.
Where You Can Get Disability Insurance
Many disability insurance consumers get their policies at work as employers step up to absorb some of the policy costs.
“The workplace continues to be an important way for consumers to obtain the insurance coverages they need,” notes Patrick Leary, corporate vice president, LIMRA Workplace Benefits Research, in a statement. “This is especially true of middle-market consumers who may not have a personal financial advisor to help them address these needs.”
LIMRA says about 70% of U.S. workers use their employee benefits plan to meet their disability insurance needs. Yet only 56% of workers say they “know” their employer offers disability insurance,” the company reports.
If you get your policy on the job, learn the rules.
For example, most employer-based disability insurance policies contribute a modest portion of your salary to the plan, with the employer usually contributing an additional amount. Your employer will likely cap the payout benefit based on your monthly salary—say $10,000, for example.
You can decide between taking a short-term disability insurance policy or a long-term disability insurance policy. Either way, any benefits paid out ends either when the disability issue has passed or when a specific time period is reached – say, five or ten years.
If you decide a private disability insurance policy is a better option, try going through an insurance agent or broker or a trusted professional association in your field of work. You can also buy a policy directly from private insurance companies where companies like Mutual of Omaha, Ameritas, and Mass Mutual all have sterling reputations as disability insurance providers. All offer one-to-10-year plans, although all cap monthly benefits to $20,000 or $30,000 per month.
Lastly, the more a disability affects your life expectancy, the more it impacts your life insurance options.
“While legally people with disabilities can’t be denied certain services, life insurance companies can consider disabilities when determining coverage and premiums,” Schlesinger says. “Unfortunately, failing to disclose your condition can lead to policy termination or the death benefit being denied to your beneficiaries.”
Best Tips For Finding the Best Disability Insurance Policy
Read the contract thoroughly. As with any legal document, it’s best to read the fine print before signing on the dotted line. The fact is, insurance companies have different definitions and, therefore different payout rules. Some may limit policy payouts to disabilities where you can’t perform your specific job (like a utility worker who can’t climb a pole or tower or a surgeon with a hand injury who can’t operate on a patient.) Other insurers may place time limits on your disability and not pay out after that period ends.
You’ll only know if you check the contract first. Having a trusted insurance agent or broker review the contract can be a big help.
Know your policy benefit time limits. In most cases, consumers (especially younger ones) take out long-term disability policies as they’re less expensive than short-term policies on a month-to-month basis. Many consumers opt for policies that last until age 65 when Social Security disability payouts kick in.
Figure out your household income needs, and then base your policy on those needs. Most disability insurance policies payout between 60%-and-70% of your total taxable income. If you opt for higher benefit payouts, expect to pay more for the policy. That’s why it’s a good idea to review your household budget and know exactly how much replacement income you’ll need from a disability policy.
Ask about cost-of-living policy provisions. Any disability insurance consumer buys a policy intending to receive replacement income in the future – even 10 or 20 years away. As a result, ask your policy provider about cost-of-living increases that keep pace with ongoing inflation. After all, $25,000 in 2034 won’t go as far as $25,000 today, so you’ll need your policy to keep up with the cost of living.
Also, some insurers will use “indexed benefits” when describing cost-of-living policy provisions.
Expect a waiting period before benefits are paid. Insurers will also include so-called waiting periods (also known as “elimination” periods) where there is a fixed number of days of legitimate disability that need to be passed before payment benefits go out. Some policies may call for a 30-day benefit and some may go to 60 or even 90 days. Before you decide on a preferable waiting period, know that short wait times trigger higher policy prices. Again, talking with a seasoned insurance professional can make that decision easier.
Check your preferred insurer before you buy a policy. Do your homework on the financial health and brand reputation of your disability insurer provider. Any insurance agent or broker can do that for you, but if you’re going it alone, check your provider with ratings companies like the following
AM Best Company, Inc.
908-439-2200
http://www.ambest.com
Fitch Ratings
1-800-75-FITCH
http://www.fitchratings.com/
Moody’s Investor Services
212-553-0300
http://www.moodys.com
Your state insurance agency office can also offer up-to-date information on insurance companies operating in your state. Start with this list of state insurance departments from the Insurance Information Institute.
