A financial crutch: More people will need disability insurance, but few can afford it
Uninsured realize risk
BY HARRIET JOHNSON BRACKEY
hbrackey@herald.com

Disability insurance is expensive, hard to get and probably the one kind of coverage many workers will need as they age.

It's like a bad joke, waiting to be told to the Baby Boomers, as they cross the 50-year-old line. The good news is you're more likely today to survive major illnesses, such as heart disease or cancer. The bad news is that it will cost you an arm and a leg to buy private disability insurance, which replaces part of your income if you're out of work for an extended period due to illness.

''Most people think, it'll never happen to me,'' says Meridee Maynard, vice president for disability income at Northwestern Mutual. ``But it does. The average disability claim lasts for 12.7 months.''

What's more, the nation's largest disability income insurer says the rate of disabilities is on the rise.

At UnumProvident, the leading disability insurer, the incidence rates of disability claims in 2001 and so far in 2002 is 16 percent higher than in the 1989 and 1990. At the same time, death rates for those on disability have declined. Added together, UnumProvident says it is paying out more to those insured and that more people are reaching the maximum benefits allowed under their policies.

Indeed, the death rate for men with heart disease dropped 28 percent between 1980 and 1998, according to the U.S. Census Bureau. And for women with cancer, it declined by 3 percent.

As it stands now, it's clear that disability is probably an ordinary worker's biggest risk.

Your chances of becoming disabled at any time in your working life are three in 10, according to the Society of Actuaries. That makes the risk of disability far larger than the risk of an accidental death.

A report by the Casualty Actuarial Society, published last July, says you are 3.5 times more likely to be injured at any point in your career than you are to die.

At the same time, only 25 percent of nongovernment workers have some sort of disability income insurance through their jobs, according to a study released last June by the National Academy of Social Insurance in Washington, D.C. Although there are few statistics on the subject, the experts assume even fewer people buy individual policies.

''Most people should be considering it,'' says Robert Hunter, the Consumer Federation of America's insurance expert. ``It is the most undersold insurance, in part because the agents get more money selling life insurance.''

What's more, the odds of becoming disabled grow worse as you age. The policies grow more expensive then, too.

The actuarial tables show the incidence of disability for men age 57 is practically triple the rate for men at age 47. For women, it's almost double.

The price of this insurance, however, is a sticking point. It's the most common reason people say they don't buy individual disability insurance.

The typical annual premium for an individual policy is $1,271, according to LIMRA International, an industry group. A term life-insurance policy would run $300 to $400 for a healthy, 45-year-old, nonsmoking man. The average individual health-insurance policy, says the Kaiser Family Foundation, costs $454 a year.

But neither should be compared directly to disability, insurance agents say, because the risks of disability are so large. And life insurance policies pay off only once, in a lump sum. Disability insurance pays continuously for several years or until retirement. A $1 million total payout is not out of reach for someone who becomes disabled at a young age.

Most of the people who do have coverage, according to a survey made last year by the Consumer Federation and the American Council of Life Insurers, get it through their jobs for free or at reduced cost, as an employee benefit.

Even those people, however, don't feel they are sufficiently protected. The CFA/ACLI survey showed that 56 percent of covered workers think their insurance wouldn't be adequate if they did become disabled.

Kristin Dunlap, a 38-year-old paralegal who works in Boca Raton, is in that camp. Through her job, she has coverage for 60 percent of her income if she is ill for an extended period.

She wanted to buy more protection, because she's single, and ''I'm going to be 40 soon, and I'm the only source of income I have,'' said Dunlap, whose income is in the mid-$50,000 range.

``I'm watching my friends getting older too, and it's getting a little scarier to think it's just me. I don't want to be a burden to my mother or my family.''

However, Dunlap says she was shocked to learn that she would have to pay anywhere from $218 to as much as $733 a month for coverage through age 65. ''That's [equal to] a mortgage or a car payment,'' she said. If she were willing to limit her payout to five years, Dunlap could pay around $140 a month.

Certified Financial Planner Helen Salazar-Realini, president of EBIS Inc. in Miami, recently looked for disability coverage for one of her clients, a 32-year-old lawyer who makes $40,000 a year. The annual rates she was quoted began at $1,800, which is equal to 4.5 percent of her client's gross salary. She has also found a cheaper policy, for $1,246.

So far Dunlap, the paralegal, hasn't been able to bring herself to buy a policy.

''If they said it was a couple of bucks a day, most of us could go without our cup of Starbucks coffee,'' Dunlap said. ``But a couple of thousand dollars is a lot.''

The problem Dunlap is facing is common, but it hasn't risen to the level of a widespread concern or a political issue.

Compared to the uproar over the price of health insurance or the cost of covering prescription medications, barely a piffle is heard in the public policy arena about the price of disability income insurance, says Robert Hunter, the Consumer Federation of America's expert on insurance matters.

In fact, disability barely comes up on the radar even outside the realm of politics and government.

Fully 82 percent of workers recently surveyed by The Consumer Federation and the American Council of Life Insurers either have no disability insurance coverage, or they believe what they have is inadequate. Almost three-quarters of the respondents believe they'd be hurt financially if they were unable to work for a year or longer.

Most people who don't get it through their jobs are left to their own devices.

''What we find is when we talk to nonbuyers is that they have not been pitched a disability policy,'' said Rick Magro, vice president of individual product design and marketing at UnumProvident.

People in hazardous occupations have a hard time getting any sort of coverage.

People who have encountered health problems, too, either can't get a policy or find their existing issues excluded from their coverage, insurers admit.

And, knowing prices are high, Magro says, ``brokers tend to target high-income individuals, who make $75,000 or above.''

For the insured, the disability payoff can be valuable, especially for families that live paycheck to paycheck.

''You generally have a bigger potential benefit out there than you realize,'' says Tom Wildsmith, actuary for the Health Insurance Association of America.

If the client Salazar was shopping for, the lawyer, became disabled tomorrow and had a policy that replaced 60 percent of her income until retirement at age 65, the payout would be $792,000.


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