Disability Insurance and Preparing for the Financial Hit

It strikes like a bolt from the blue: unwanted, unexpected, unwelcome. Unfortunately, many of us are totally unprepared for the financial hit that disability can bring.

Imagine: you’re suddenly unable to work. Without an income, you quickly exhaust your savings, undermining your family’s financial security. The money you’ve managed to put away for a vacation, the kids’ education, and your own retirement now has to be spent on gas, groceries, and other necessities. The worry is suffocating. The stress and sleepless nights can seem unbearable.

Worse, it could continue for a long time. Long-term disability lasts 31.2 months, on average, so the long-term financial impact can be devastating. Over half of all personal bankruptcies and mortgage foreclosures are a consequence of disability, according to a 2005 Harvard study.

Most Americans live paycheck to paycheck. There’s little or no money left for unexpected emergencies like an injury or illness – the primary causes of disability.

What can you do?

Purchase a Long-term Disability policy.  It’s that simple.  The market is robust, with great contractual language that will replace most of your income, and in most cases, the disability payments will continue until Normal Social Security retirement age.

While for many years the poster child for Long Term Disability was no child- he was Super Man (Christopher Reeve) who in 1995 became paralyzed from the neck down following a horse-riding accident. He founded the Christopher Reeve Paralysis Foundation in 1998 to promote research on spinal cord injuries. He died of cardiac arrest in 2004.

Most LTD claimants are not Super heroes, rather normal folks.  People like my friend David. Because he invested in disability insurance, David was still able to take care of his family after a stroke caused him to retire early.

At age 48, it appeared the best years of David’s life were still ahead. Between playing volleyball, participating on the local ski patrol, spending time with his family, and traveling for business, David was leading an active, exciting life.

But, in early spring 2005, everything came to a halt. David suffered a stroke that changed his life forever.

Although in a wheelchair, David decided to return to work part-time, hoping he would have the ability to resume his career as an IT consultant. While he physically made progress by switching from the wheelchair to a cane, David felt overwhelmed at work. “I wasn’t able to keep up with my colleagues and resume traveling-even part-time, so I permanently retired,” he said.

Financially, the stroke greatly affected his family. “Thank goodness we were prepared,” said David.

Although financial matters now are more challenging, David’s family remains financially sound. He attributes their situation to their savings plan and preparedness in the event he or his wife became disabled. David previously purchased a disability income insurance plan through his employer, which helped the family financially after his stroke.

Looking back, David remembers that, “There was no warning. I was healthy. I went to the gym, skied often, and used a treadmill at home. I had no other symptoms. It just happened. One day, you’re fine, and the next day you’re not.”

Burman S. Clark

Burman S. Clark, RHU, CSA is the President of Muneris Benefits and a licensed insurance broker and consultant. His independent practice and focuses on employee benefits, individual life, disability, medical, and senior products. Burman has traveled extensively and provided guidance to large employer associations with regards to the Affordable Care Act.