4 Observations from the Last 12 Months Applied to Disability Insurance Planning

1. Importance of proper income replacement levels become very clear when needed.

You could say that many individuals were “under-insured” based on their state unemployment benefits, but then an interesting dynamic occurred when additional federal unemployment benefits were added on top. For some individuals this helped achieve an ideal level of income replacement. For others this additional benefit went further, resulting in more than an optimal level which created an incentive to remain on unemployment instead of going back to work. The parallels to disability insurance are similar. While unemployment hopefully is a shorter duration situation a long-term disability event can last years, not having enough income replacement creates a financially difficult situation when income is needed the most and usually comes with added medical expenses.

Takeaway: Make sure disability benefits provide enough benefit or percentage of income to cover expenses (and don't forget the pre-tax expenses!).

2. Fatigue, Isolation, Burnout = Impacts to Mental Health.

Front line workers in medical and retail settings along with those who have been fortunate to work from home all have been dealing with various mental health issues from isolation to burnout. Mental health related situations account for about 10% of long-term disability claims. These are situations include: anxiety, depression, and substance abuse. It should be noted on group long-term disability plans, benefits are limited to 24 months for these claims and unfortunately the claim duration for this category can exceed this by another 3 years (on average) depending on the specific situation. This is important to understand especially for those executives leading organizations, physicians, and other high-income professionals where this claims category tends to have a higher percentage of claims than the broad employee population.

Takeaway: This is an important contractual feature to be familiar with when supplementing group disability coverage with individual disability insurance. Make sure your overall plan doesn’t have a gap.

3. Insurance is for protection and provides security in times of uncertainty.

Many insurance professionals spent the early months of the pandemic educating individuals and employers about their disability plans definitions, triggers, and benefit amounts. Fortunately it has appeared that most working age individuals do recover in short time period from COVID-19, but for those that are impacted for a longer period of time, disability benefits are there to provide in the event of prolonged illness(or accident) impacting the ability to work. A claim may never occur (which is a good thing), but being prepared to mitigate the impact of a large financial risks does create protection and security. While we all want to avoid injuries from an accident, most people believe accidents are a majority of disability insurance claims. In reality it is only about 10% of claims. Common situations issues relating to backs, joints, muscles, and your heart followed by cancer are the top disability claims every year.

Takeaway: Disabling events impact those who aren’t accident prone. And it sounds cliché, but insurance really does provide peace of mind. 

4. A potential wave of employees moving to new employers could be coming.

Many employees have already moved out of their city or even state to work remote, but that isn’t the only move they may make. Microsoft’s first-annual Work Trend Index found that “over 40 percent of the global workforce is considering leaving their employer this year”.(1) Will there disability benefits go with them? Usually not. Yes, flexible work cultures will be a factor to watch, but benefits are still a significant force in recruiting and retaining talent. Many of these changes may be to jobs with higher pay and/or for potential of higher pay in addition to work/life balance. Will disability insurance benefits be the same as the prior employer or be enough with income increases? Individual disability insurance is fully portable and provides coverage throughout one’s career whether obtained individually or through an employer.

Takeaway: Incomes and jobs change over one’s career, but so do disability insurance benefits offered from employer to employer, so don’t delay in reviewing your personal plan today!

1) https://www.microsoft.com/en-us/worklab/work-trend-index/hybrid-work