Watch your step there. See that gap? It’s the difference between reality and what employees believe about the possibilities of disability. Unfortunately, employees are woefully underinsured when it comes to comprehensive income protection. And disability insurance — one of the most popular methods of income protection — is often viewed as too complex or complicated.
In the 2010 Consumer Disability Awareness Survey, “The Disability Divide,” conducted by the Council for Disability Awareness (CDA), almost 70% of respondents thought a disability could keep a person out of work for more than one year. Yet 38% said they could only pay their bills for three months or less if they lost their income. One could say there’s an obvious disconnect relative to the realities of disability and its potentially catastrophic economic impact, especially in current conditions.
A CNN/ORC Interactive poll taken in September 2011 showed that 90% of Americans believe economic conditions in the United States are “poor.” To put this in perspective, only 11% of Americans rated U.S. economic conditions as “poor” in the same poll taken back in January 1999. According to a Harris Interactive survey conducted for CareerBuilder.com, at the end of 2010, 61% of all Americans said they were living paycheck to paycheck. If you get sick or hurt and are unable to bring home a paycheck, how many months will the bank keep waiting for that mortgage payment?
Many workers understand the benefits of insuring their homes or cars, but they neglect to take a step back and look at just how they are able to pay those premiums. They overlook the fact that, without a paycheck, many of their possessions would be unprotected. Why? Because they don’t understand what is at risk if they become disabled.
When it boils down to it, there are many ways to educate employees on the needs for disability insurance. I recommend you highlight the emotional aspects of coverage and then back yourself up with the facts.
The CDA’s Advisor Information and Resource Center says the average long-term disability absence lasts 2.5 years. Could you cover all your bills for three months, two and a half years, or more? What would happen if you couldn’t?
Home foreclosures due to disability still outpace every other consequence, including job loss. Losing a home is a harsh reality that many people wish to never encounter. Positioning disability insurance in this light can pique more interest on a personal level versus discussing jargon-laden benefit provisions.
Many employees’ image of disability is catastrophic, like a car accident, and they also think that disability is a lifetime event. These perceptions simply aren’t true. The CDA’s survey found that more than 1 out of 4 income-interrupting disabilities are triggered by muscle and bone disorders, such as back problems, joint pain and muscle pain. Another way to drive home the need for disability insurance is to use an example of either a co-worker who recently became disabled or a community member. This really strikes close to home and keeps things real.
Thanks to the digital age, information is available at our fingertips within mere seconds. Use it! Data, and lots of it, are at your disposal to back up the need for and efficacy of disability insurance. Several organizations produce numerous surveys and reports, published by entities such as the CDA and Gen Re. For example, the CDA survey found that more than 70% of workers say a disability that prevents them from working would likely be caused by a serious accident. But more than 90% of disabilities are actually caused by illness. In fact, injuries only account for 9% of new long-term disability claims. Cancer is the second leading cause of new disability claims, representing 15% of all claims. And guess what? Cancer is a covered sickness under most disability insurance plans.
SSDI and workers’ comp hurdles
A main roadblock that often presents itself when you are working to make disability insurance understandable is the old notion that “Social Security Disability Insurance (SSDI) and workers’ compensation will take care of me.” While these programs have a place and serve to provide some financial support, they will never be the complete answer. Here are a few tips and facts you can use with the customer to work around these roadblocks:
• SSDI has a longer elimination period (upward of five months).
• Only 35% of initial SSDI applications were approved in 2009, according to Social Security Administration data from the Office of Disability and Income Security Programs.
• SSDI’s definition of disability is more restrictive than that of many private insurance carriers. A larger array of disabilities is more likely to be covered by carriers.
• Nearly 90% of disabilities aren’t work related and, therefore, don’t qualify for workers’ compensation benefits, according to the National Safety Council’s 2008 edition of “Injury Facts.”
• Workers’ compensation has a fairly low benefit cap and may not provide full coverage.
• In order to qualify for workers’ compensation, the injury must be verifiable and must have happened on the job. Disability insurance via a private carrier has the added benefit of providing 24-hour coverage.
You can also provide more options for your customers by introducing the concept of leveraging IRS Revenue Ruling 2004-55. Employees need to receive the greatest benefit amount possible at the time of disability, especially when they do not have sufficient savings in place. Employers remain concerned about the cost of insuring their benefit plans, and you can help them make the most of their premium budgets by showing them how they can utilize IRS Revenue Ruling 2004-55.
When a plan follows the requirements outlined in IRS Revenue Ruling 2004-55, disability benefits received by an employee who has irrevocably elected prior to the beginning of the plan year to have the coverage paid by the employee on an after-tax basis for the plan year in which the employee becomes disabled can be excludable from the employee’s gross income. Most employers are interested in finding out how their plan can be set up to minimize taxation of disability benefits. The steps outlined in IRS Revenue Ruling 2004-55 can be used with employers that have a non-contributory plan and are willing to take on the minimal administrative work involved. Be sure to encourage your customers to review the ruling at www.irs.gov/irb/2004-26_IRB/ar06.html, and consult with their benefit plan attorneys, tax preparers and accountants to learn more about this ruling.
Disability happens. As trusted professionals, we must keep the communication clear and continually work toward aligning perception and reality. We must speak to the true matter: would you rather bet on luck to make the mortgage payment or contribute a small percent of your paycheck and have a guarantee?
So strap on your hard hat and start examining those blueprints. It’s time to start bridging the gap.