Two new surveys show that Americans are poorly prepared to handle the financial fallout of a disability.
Should they suffer a disability, most baby boomers say they are financially unprepared, according to a new survey conducted by Harris Interactive on behalf of America’s Health Insurance Plans (AHIP). In fact, they would struggle to pay bills and many would have to rely on their retirement savings.
The formula creating this potential disaster is simple, according to Karen Ignagni, president and CEO of AHIP.
“Baby boomers have too much debt and not enough savings to weather even a short-term disability,” Ignagni said.
The survey determined how financially prepared boomers would be if the primary wage earner in their household became disabled and was unable to work for an extended amount of time. Fifty-five percent said they are not at all or somewhat unprepared, while only 15 percent said they are very or extremely prepared should a disability occur.
Boomers were also asked how long they could go without their primary wage earner’s income before they had difficulty paying all their bills. Sixty-four percent would have difficulty within the first year, 49 percent would have difficulty in the first six months, and 33 percent would have difficulty paying all their bills in just the first three months. Most boomers said they would have difficulty making their mortgage payments, car payments, credit card payments, and/or supporting dependents within the first year.
Thirty-two percent of boomers said they would have to tap into their retirement savings if the primary wage earner in their household became disabled, and 17 percent admitted they do not have a retirement savings to draw upon.
Compounding the problem is that most boomers have a significant amount of non-mortgage financial burdens, such as credit card debt and auto or education loans. Fifty-two percent have more than $5,000 in non-mortgage debt, 25 percent have more than $20,000 in debt, and nine percent have debt of more than $50,000.
One obvious solution is the protection provided by disability insurance. But many Americans don’t enjoy that security.
A survey released by the nonprofit LIFE (Life and Health Insurance Foundation for Education) Foundation shows that nearly 80 percent of working Americans say they would turn to their employer or the government for financial support in the event of a disabling illness or injury, rather than disability insurance purchased on their own.
“Most people have a false sense of security when it comes to being financially prepared for a long-term disability,” said Matthew S. Tassey, former chair of the LIFE Foundation. “The reality is the majority of workers do not have disability coverage through work, and disability benefits offered by the government, such as Social Security or Workers’ Compensation, can be difficult to qualify for.”
The LIFE survey asked 520 working adult Americans (employed either full- or part-time) which source of financial support they would rely on most if they were to become disabled for one year or more:
- 35 percent said they would count on employer-sponsored disability insurance coverage if they were to become disabled for a year or more. While coverage provided by employers is the main source of disability income protection in the United States, most employers don’t provide disability insurance as an employee benefit. According to the U.S. Department of Labor, less than 30 percent of U.S. workers have access to long-term disability coverage through work, and only about 37 percent have access to short-term disability coverage.
- 31 percent said they would rely on government-provided benefits, but those aren’t easy to get. According to the Social Security Administration, roughly 60 percent of people who applied for Social Security disability benefits in 2005 were initially denied. To those who are declared eligible, Social Security pays just a little more than $1,000 a month.
- 13 percent said they would turn to Workers’ Compensation, but that covers only those who get injured, ill, or die as a result of their job—and only 10 percent of disabilities occur on the job.
- 11 percent said they would rely on disability insurance they had purchased on their own.
Nearly one-third of workers will suffer a disability that keeps them out of work for 90 days or longer at some point in their career. Despite that fact, only 6 million individual disability insurance policies are in force for a U.S. workforce of more than 146 million. |
