When an otherwise healthy person suffers an injury or illness that limits their ability to work, the individual can often qualify for disability benefits through a government program, work program, group insurance, or individual insurance policy.
The trouble is that defining what is and is not a disability can be complex. As such, disability insurance is arguably the most complex type of insurance policy.
With misunderstanding comes misconception. Here are five common myths people often believe about disabilities and disability insurance. Each myth is debunked using disability statistics and information about disability insurance policies.
It’s common to think of long-term disabilities as the result of a car accident, the overuse of drugs and alcohol, or dangerous activities such as mountain climbing or race-car driving.
All you have to do, the thinking goes, is avoid high-risk behavior and you can avoid having a disability.
The truth is that your chances of becoming disabled may be much higher than you think:
- According to disability statistics from the Social Security Administration, more than one in four of today’s 20-year-olds can expect to be out of work for at least a year because of a disabling condition.
- In addition, about 5.6 percent of working Americans miss work for up to six months due to a disability every year, according to Integrated Benefits Institute.
- The overall occurrence of disabilities seems to be more prevalent today than in the past. According to a 2017 study by the Center for Talent Innovation (now Coqual), about 33 percent of millennial professionals have a disability as defined by the U.S. government. That’s a higher rate than was reported by Baby Boomers and Generation X.
- Few of these incidents are caused by high-risk behavior. In fact, 95 percent of all long-term disability insurance claims are caused by illness and not accidents or injuries, according to the Council for Disability Awareness.
While some people think of disabilities strictly in terms of catastrophic incidents, others believe they will be able to continue working through their disability.
Whether this is true will depend on your profession, work environment, and the nature of your disability. If you’re an accountant who works in a typical office and breaks a leg playing basketball, you can likely continue doing your job with a few accommodations. The same can’t be said for a firefighter, construction worker, or surgeon.
Disability statistics for the most frequent disabilities show how likely it is to miss work due to an injury or illness. The five leading causes of long-term disability are:
- Musculoskeletal. According to the Council for Disability Awareness (CDA), about a quarter of long-term disabilities are caused by muscle, joint, or back problems. In addition, the Centers for Disease Control (CDC) says arthritis is the most common cause of disability. Although there are varying degrees of arthritis, more than 23 million of the 54 million sufferers have trouble with their usual activities.
- Cancer. According to the CDA, cancer is diagnosed in about 70,000 people in their 20s and 30s each year. It’s not always cancer itself that causes people to miss work; cancer treatments in many cases cause people to need extended time off.
- Cardiovascular. Heart disease accounts for about 10 percent of long-term disability claims, according to CDA. Recovery from cardiovascular conditions can keep you out of work for months and the lingering effects can make it difficult to return to full employment.
- Injuries. Accidents happen, but not as often as people think. In fact, about 10 percent of disability claims are due to physical injuries resulting from accidents.
- Mental health. According to the CDA, about 26 percent of adults are diagnosed with one or more mental disorders in a year, and they account for nearly 10 percent of long-term disabilities.
Based on disability insurance claims from 2010, the average disability claim on an individual policy lasted about two years and seven months, while the average length of a group policy claim was just short of three years.
In many cases, a disabled person can work, but they either have to work a less intensive job or reduce the amount they work in their current profession.
The third myth about disabilities is that injured people can depend on workers' compensation, government benefits, or their own resources.
But according to the latest disability statistics:
- In 2016, only one percent of American workers missed work because of an occupational illness or injury, which are the only incidents in which a worker can claim workers' compensation.
- From 2006 to 2015, only 34 percent of Social Security Disability Insurance (SSDI) claimants had their applications approved.
- The average SSDI benefit as of January 2018 was $1,197 a month, which equals just over $14,000 a year.
- According to the Federal Reserve, less than half of Americans say they have enough savings to cover three months of living expenses in the event they’re not earning any income. The same percentage indicates they can’t pay an unexpected $400 bill without having to take out a loan or sell something to do so.
- More than 70 percent of American households rely on two incomes, making it important for both spouses to have disability insurance.
Many people write off disability insurance, believing they will be denied coverage in the underwriting phase. Maybe they have diabetes or other chronic illness that, although managed, may lead to complications later. Or they have risky hobbies and interests like rock climbing, skydiving, or skiing.
It’s true that disability insurance for individuals is underwritten much like life insurance, and that insurers will assess your overall risk of becoming disabled before issuing you a policy. But your health or lifestyle doesn’t necessarily prevent you from obtaining coverage. Instead:
- You may pay a higher premium for health and/or lifestyle attributes, but you can still get coverage.
- Even is one carrier won’t cover you, others will. It’s a competitive market and some insurers cater to certain individuals that other carriers restrict coverage to.
- Your policy may contain exclusions or benefit limitations that restrict coverage for claims resulting from or related to a preexisting medical condition, or from participation in a potentially hazardous activity.
Exclusions and limitations are added by the insurance carrier to mitigate their risk of paying a claim for an illness or injury resulting from high-risk conditions or activities.
Understanding disability insurance exclusions. If you are granted disability insurance coverage with an exclusion, the insurance company will insure you but will add language to your policy that they will not cover certain body parts, conditions, or disabilities resulting from certain activities.
Many exclusions apply to all applicants. For example, disability insurers typically will not pay claims for injury or illness resulting from self-inflicted acts, criminal activities, acts of war, civil disobedience or rebellion, and from operating a motor vehicle while intoxicated.
You may also have additional exclusions that are specific to your underwriting that restrict coverage for claims resulting from or related to a preexisting medical condition, or from participation in a potentially hazardous activity that presents an increased risk of a potential disability.
Understanding disability insurance limitations. Your disability insurance policy may also include certain limitations. These are similar to exclusions except that instead of completing restricting coverage for certain conditions, the policy may limit your benefits in certain circumstances. Like excursions, some insurance company limitations are universal, while others may be added to a specific policy based on the applicant’s underwriting.
One of the more common limitations is disabilities that are caused by mental illness. Many policies that pay disability benefits for 10 years or to age 65 may limit the benefit period for mental illness to 12 months or two years.
Another common misconception of disability insurance is that it only pays if you are completely disabled. Therefore, if a high-paid professional in a technical field is healthy enough to work in say, retail, they can’t collect from a disability insurance policy.
This may be true for some disability insurance policies. But with the right coverage, it doesn’t have to be.
Understanding any occupation disability coverage
Under this type of policy, you may be ineligible for benefits if you can work another job. This is true regardless of whether you do so. This is the strictest definition contained in a disability policy. An any-occupation policy will typically require the lowest premiums. But it will also result in the least amount of coverage.
This policy type only pays benefits if you can’t perform work “reasonably suited” to you. A number of factors define “reasonably suited.” The insurance company will assess whether you can find a job that:
- You are qualified to perform, based on skills and education.
- Pays a minimum percentage of what you earned prior to the disability. A typical level is 60 percent of your pre-disability wages.
- Is located within a reasonable distance from your home.
- Will allow you to attend scheduled appointments and treatments.
- Your physician will sign off on you to perform.
Understanding own occupation disability coverage
The opposite of an any-occupation definition is own-occupation coverage.
An own-occupation disability insurance policy protects your ability to work in your given profession. You will be covered if a disability prevents or limits you from working the job you had before your event. If you’re able to work in another capacity, you are still eligible for benefits.
A typical own-occupation provision will state: “You are not able to perform the material and substantial duties of your occupation, even if you are gainfully employed in another occupation. If you meet the definition of totally disabled and you become employed in a new occupation, your total disability benefit will not be affected by any income from the new occupation, regardless of the amount.”
Some own-occupation policies enable you to collect full benefits if you can still practice your specialty in a limited capacity. For example, a few companies will consider you totally disabled if:
- More than 50 percent of your income is from either hands-on patient care or surgical procedures; and
- You can no longer perform those duties or procedures due to injury or illness.
The danger in believing these myths about disabilities is that they can discourage people from obtaining disability insurance.
But disability statistics underscore the need for anybody who depends on a job for income to protect that income with disability insurance.
Joel Palmer is a freelance writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.