Should You Go Without Disability Income Insurance?


DisagreeMay is traditionally Disability Awareness month.  That, in itself, does not mean much to me.  It seems that every day I am bombarded with advertisements, from one special interest group or another, about “National ______ Awareness Day” or “World ______ Day.”

The American Heart Association has declared that February should be “National Heart Disease Awareness Month.”  Every October, I am forced to have my eyes assaulted with hot-pink shoes, towels and wrist-bands by players in the NFL as the most popular sports league in the country raises money for the American Cancer Society during “Breast Cancer Awareness Month.”

The insurance industry has carried the idea even further.  May is Disability Awareness Month.  They also have awareness months for Long Term Care and Life insurance.  The public may not know about them, but we insurance agents are riddled with marketing pleas from insurance companies telling us that we should stress to the public that they should spend their money to buy their products.

With all of these “Awareness” campaigns it does not surprise me to hear that Americans are less generous now than our parents were.  It seems like every “charity” has its hands out asking for even more money.

I am aware that heart attacks happen during all 12 months and not just in February and that cancer can attack organs other than a female’s breast during months other than October.

I am also forced to say that Americans can suffer a disability in a month other than May.

Last Sunday I was reading, Disability Insurance:  Cash is a better plan.  Actually, I agree with some of what the author says.  However, he makes some assumptions that are not based in fact.

YOUR ODDS OF SUFFERING A DISABILITY ARE SMALL

Although this is a common assumption, it is not based in fact.

The truth is that 1 out of every 4 young Americans, will suffer a disability, of some sort, that will last for 90 days, or more, during their working years.

Many of them will have enough money set aside in a “Rainy Day” savings account to allow them to maintain their standard of living while they are recuperating.

Unfortunately, in spite of good wishes and positive thoughts, many will have little, if any, money in a “Rainy Day” fund.  If they have no disability insurance, either at work or privately owned, they run the risk of adding financial stress to their physical problems.

ALL “FOR-PROFIT” DISABILITY INSURANCE COMPANIES ROUTINELY DENY CLAIMS

This is another false assumption.

Private insurance companies, who offer both group and individual Disability Income policies, use the principle of “CHANCE” to price their premiums.  They want to help Americans who are legitimately unable to go to work because of a physical or mental illness.

Unfortunately, way too many Americans, look for ways to take advantage of the “Deep Pockets” of insurance companies.  They forget that the only reason the insurance companies have “Deep Pockets” is that millions of Americans have chosen to pool their money so that those of us who are unfortunate enough to actually suffer an illness or accident during the year will get a regular flow of income until we are able to take care of ourselves.

The reason there are so many declines is that there are so many Americans, who are able to work, but are not willing to.  They have decided that they deserve to let the rest of us pay for their extended “vacation.”

Although Disability Income insurance is vital for many Americans, it is also one of the most abused insurance systems in our nation.

Fortunately, all insurance companies have “Claims” departments.  Their job is to determine what claims are legitimate and what ones are attempted insurance fraud.

They also keep watch on those claims that are approved.  They want to make certain that legitimate disability claimants do not continue to claim a disability after they are healthy enough to return to work.

The sad fact is that, because this system is the way it is, some Americans, with legitimate disabilities, get their claims denied the first time.  They must go through the appeals process to get their rightful benefits.  They must prove, to the insurance company, that they are truly disabled, according to the definition of disability that is in their policy.

GROUP DISABILITY INCOME INSURANCE IS IDENTICAL TO INDIVIDUAL DISABILITY INCOME INSURANCE PLANS

Again, this is a false, but common, assumption.

There are several differences between the group disability plan you have at work and an individual plan.   Both plans have their good and bad points.  If you have a choice, you can determine which, if either, are best for you.

Having said that, I want to discuss how both plans are regulated.

Group Plans

Many companies offer Group Disability Income plans.  They have the advantage of being, relatively, inexpensive.  The problem is that the low price may come with a few problems.

  • Your business owner will often determine how much of your income will be replaced if you are disabled
  • Your plan is not portable.  That means that when/if you change jobs, you will lose your disability insurance.
  • Group disability plans are regulated by federal ERISA laws.  Those laws tend to have more loop-holes that insurance companies can use to deny claims.
  • Since group plans are subject to federal ERISA laws, if you do have a problem with a future benefit, and have to seek legal help, lawsuits are held in a federal court and are subject to the wisdom, and ruling, of a federal judge.  You will not have the right to trial by jury.

Individual Plans

If the company you work for does not offer Disability Income insurance, or if they do and you simply want more control, you should look at your options with an Individual Disability Income insurance policy.

Individual plans tend to be more expensive than group plans but they offer the following benefits.

  • Customization – You can customize your plan to meet your personal needs.  If you need the maximum benefit allowed, you can get it.  However, most people need less than the maximum to maintain their standard of living.
  • Portable – If you change jobs, you can take your Disability Income insurance with you.  Just understand that any benefit that you would get, during a period of disability, is going to be based on your new salary and not on your old job.  If there is a difference in pay between your old and new job, you may need to adjust your policy so that you don’t pay more than you need to.
  • Regulation – Unlike group plans, Individual Disability Income plans are not subject to ERISA.  That means that if there is a problem in the future, and you have to involve an attorney, your suit will be governed by state contract law and you can request trial by a jury of your peers.

FIN

I tend to agree with the argument that was made in the book I was reading.  It is always better to have cash in a “Rainy Day” savings account than to rely on insurance.

Unfortunately, there are two “What if …” questions that keep arising in my mind.

  1. What if I do not have a “Rainy Day” savings account?
  2. What if my disability lasts longer than the funds in my “Rainy Day” savings account?

Click the banner below to learn more about your options for Individual Disability Income insurance.

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