Disability Insurance: The Biggest Benefit is Education

Misconceptions and contradictions point to opportunity for advisors

by Carol Harnett

Ms. Harnett is a widely respected consultant, speaker, writer and trendspotter in the fields of employee benefits, absence and disability management, and health and performance innovation. Harnett became President of the Council for Disability Awareness in July 2014.

New data from the Council for Disability Awareness (CDA) spotlights a dichotomy for financial advisors: More employers are offering long term disability coverage, yet fewer workers have long term disability (LTD) benefits.

Why? It seems that much of this dynamic relates to employers’ increasing inclusion of voluntary coverage as part of their overall benefits strategy. According to Gil Lowerre, president of Avon, Conn.-based Eastbridge Consulting Group Inc., 54 percent of all employers provided at least one voluntary benefit in 2006. Six years later, that percentage grew to 77 percent. And because employees absorb the costs of voluntary benefits, approximately half of workers choose not to take part. In fact, only 40-50 percent of employees enroll in voluntary disability plans.

While forgoing disability coverage may offer some short-term savings, it could also lead to a long-term financial challenge.

Most of us speculate that wage earners throw the dice when it comes to protecting their incomes. Some operate under the “it will never happen to me” belief, while others choose to think a disability happens to someone other than them. Either way, working consumers put their financial health at risk when they go without coverage that could protect their paychecks if a disability forced them to leave the workforce for a period of time.

The insight for advisors is clear: It’s more critical than ever to help individuals understand their risks and ensure that clients make the best choices in protecting their incomes and their long-term financial well-being.

A contradiction in coverage?

The CDA’s member companies reported slightly more than 214,000 employers offering long term disability plans to their employees in 2013, according to CDA’s 2014 Long Term Disability Claims Review [http://www.disabilitycanhappen.org/research/CDA_LTD_Claims_Survey_2014.pdf]. This marked a slight increase for the second year in a row.

Overall, LTD claims payments grew to the highest-ever level of $9.8 billion last year. Yet at the same time, the aggregate number of insured employees declined roughly 1.5 percent to 32.1 million last year. This slightly reversed the increase seen in 2012.

Again, these seemingly contradicting facts point to an opportunity for advisors to grow their businesses. Employers can offer voluntary plans to their staff, and advisors can help their clients and prospects insure their incomes through individual or group disability plans.

Refuting misconceptions

There is some confusion among wage earners as to what constitutes and causes disabilities. Advisors are in a great position to educate their clients on these issues.

CDA data shows that many people believe disabilities are mostly caused by catastrophic injuries. What working adults may not know is the leading cause of income-interrupting disabilities is musculoskeletal diseases, such as back and joint disorders, which account for 28.6 percent of new LTD claims. Cancer, which many working consumers may not necessarily think of as a disability, is the second-leading cause of new LTD claims (15.1 percent).

Many wage earners can better relate to these more common causes of disability. This sets up a more productive conversation between advisors and their clients and prospects, and further positions them as trusted partners.

Who’s most at risk, and where?

It may catch many employees by surprise to learn that women, not men, make up the majority of LTD claims.

Women accounted for 56 percent of new disability claims in 2013, according to the CDA’s claims review. About 20 percent of the time, the reason for this is connected to maternity-related issues, including complications of pregnancy and childbirth. The birth of a child is traditionally seen as one of the happiest times of life, yet it also can represent a longer-then-expected interruption to a mom’s income.

Another common misconception about income-interrupting disabilities is that they happen at work. Employees are often surprised to find that illnesses and injuries that occur outside the workplace are the biggest threat to their ability to earn a living. Less than 5 percent of the CDA member company LTD claimants also received workers’ compensation payments between 2009 and 2013.

Older workers’ risks increasing

Another common misconception about income-interrupting disabilities is that they happen at work. Employees are often surprised to find that illnesses and injuries that occur outside the workplace are the biggest threat to their ability to earn a living

It’s no secret that years of a down economy delayed a lot of workers’ retirement plans. It’s also no surprise that claims trends are mirroring this aging of America’s workforce. Workers are staying on the job longer than before.

This trend drove the average age of new claimants in 2013 to just over 50 years old. In fact, 59 percent of new LTD claims approved during 2013 were for people 50 and older. (When considering this statistic, it is important to keep in mind that a larger percentage of covered employees are also over 50 years of age.)

While claims for those age 50 and older have been consistently increasing, the subset of claimants over 60 years old has been the real driving force.

There are a number of reasons workers are putting off retirement, whether it’s a desire for more income, the need for health coverage, or the personal fulfillment that working may bring. No matter the reason, these employees have their own reasons to protect their incomes as they near traditional retirement age.

Youth carries risks, too

While more LTD claimants are often older, younger employees need to protect their incomes as well. Forty-one percent of new LTD claimants last year were in their 40s or younger, according to the CDA’s claim review. When you consider that fewer younger employees overall do not insure their incomes, this percentage is even more eye-catching.

This trend is not limited to private disability insurance. Part of the upcoming projected depletion of the Social Security Disability Fund in 2016 is related to disability benefits being unexpectedly paid at higher rates to young claimants, according to the Center for Retirement Research at Boston College.

Despite these facts, the youngest workers remain more prone to believing disabilities can’t happen to them. Industry statistics paint a different picture. About one in four of today’s 20-year-olds will suffer an income-interrupting disability at some point during their working careers. Those are dangerous odds when it comes to the potential loss of their ability to work and earn an income.

That’s exactly why advisors should try to engage wage earners at the earliest age possible, and equip them with the facts they need to make sound decisions about income protection.

Stories not stats

Advisors need a firm understanding of the data and the trends that drive disability claims. These figures serve to educate and help clients make informed income-protection decisions. The CDA Long Term Disability Claims Review is an excellent jumping-off point for those discussions. It helps brokers, employers and employees understand the underlying dynamics of being unable to work and what happens when they lose their incomes.

But it’s also important to remember that stats can only go so far. It’s up to the advisor and broker community to help clients form an emotional connection with the data. What’s the “story” of disability? What happens to my income? What happens to all of the things my salary buys? What situations have you seen before that can better help me understand my risks and opportunities?
The need has never been greater. Disability insurance and the overall employee benefits industries are undergoing a period of rapid change. The implementation of the Affordable Care Act, continued rising costs of health care, new technologies and economic uncertainties all cloud the picture.
The role of the trusted advisor has never been more important. Those who take the lead and become storytellers and educators will be well positioned to leverage this new world order. v


In addition to its annual claims review, the CDA offers other resources to help advisors better educate working consumers about the need for income protection. These include calculators that help you show your clients’ disability risks, the amount of income adults could lose if they leave the workplace due to illness or injury, and strategies employees can put in place to protect their ability to work.
Visit disabilitycanhappen.org to learn more.

The CDA 2014 Long Term Disability Claims Review is based on data supplied by CDA’s member companies, which represent 75 percent of the private disability insurance marketplace, and is considered a comprehensive annual report on the topic.