Emerging Trends: More Wage-Earner Incomes at Risk

Your role? Show clients how they can protect their most valuable financial asset – their income.

by Barry Lundquist

Mr. Lundquist is the president of the Council for Disability Awareness (CDA). His professional background includes over 30 years of insurance industry success in underwriting, sales, sales leadership, senior executive management and consulting roles for employee benefits and individual disability products and sales channels at Paul Revere, Provident and Unum.

Disability claims continue to rise while fewer working Americans have adequately protected their incomes.

That’s the sobering takeaway from the 2012 Long-Term Disability Claims Review, sponsored by the Council for Disability Awareness (CDA). CDA reveals that the number of long-term disability claims continued to increase in 2011 while the number of wage earners protected by private disability income insurance declined. The study compiles claims from CDA’s member companies.

The report points to diseases of the musculoskeletal system and connective tissue, such as arthritis and osteoporosis, as the leading causes of new disability claims. The second-leading cause was cancer, followed by injuries.

By the Numbers: Baby Boomers

The Claims Review revealed that 55 percent of new, approved disability claims were for individuals age 50 or older, reflecting the aging American workforce. Many boomer generation breadwinners have competing demands heaped on their incomes — like funding tuition for their children, caring for elderly parents and playing catch-up to fund their own retirements.

Past generations of workers tended to remain with their employers for long periods of time, and commonly earned a guaranteed retirement income from defined benefit pension plans. All that has changed. Now, most 50- or 60-something wage earners are not prepared to retire. They remain dependent upon their continued earnings to stay afloat financially and to build an adequate retirement nest egg. The boomer generation is especially vulnerable if they become disabled and lose their regular paycheck. With their employment window narrowing, protecting their remaining earnings from the growing risk and consequence of disability remains a very important financial priority.

The Challenge for Younger Generations

Compared to generations before them, younger wage earners will likely see less employment stability, more responsibility for choosing and paying for their benefits, less retirement security, and more stringent requirements to qualify for entitlement programs like Social Security and Medicare. When first entering the workforce, a wage earner’s cumulative earnings potential and cumulative risk of disability are both at their maximum. For example, using CDA’s Earnable Income Quotient (EIQ) calculator, a 25-year-old earning $42,000 should earn more than $3 million by age 65. Using CDA’s Personal Disability Quotient (PDQ) calculator, that same 25-year-old’s chances of experiencing a long-term disability during his or her working career is significant: about 12 percent assuming best case scenario risk factors and as high as 50 percent or more if health history, body mass index, smoker status and occupational duty characteristics increase his or her risk. Adding to the challenge, as CDA’s 2010 Disability Divide Research report shows, almost all younger workers view their own disability risk as significantly lower than it actually is.

Contributing factors behind the lower numbers covered by long-term disability plans include the lackluster economy, a high unemployment rate, more voluntary benefit programs and escalating health care premiums. It should be a concern to advisors and human resources professionals that even as long-term disability claims continue to rise, fewer of America’s wage earners have protected their incomes from the serious loss that could result if an illness or injury prevented them from working. Research continues to demonstrate that workers dramatically underestimate their risk of disability and too often don’t think about protecting their most valuable financial resource — their income.

It’s all in the numbers

  • More than one in four of today’s entrants to America’s workforce will suffer an income-interrupting disability at some point during their working careers.
    Source: Social Security Administration, Fact Sheet March 18, 2011
•  Fifty percent of all workers have actually planned for the possibility of disability.
  • Only 46 percent have discussed disability planning with a financial professional.**
Past generations of workers tended to remain with their employers for long periods of time, and commonly earned a guaranteed retirement income from defined benefit pension plans. All that has changed


What can trusted advisors do to help America’s wage earners put the idea of protecting their income at the top of their minds?

Educating employers, employees and fellow financial advisors about the risks of suffering a disability — and what can be done to mitigate the effects of an unexpected disability — is key. Here are a few tools made available by CDA to help raise disability awareness:

  • The 2012 Long-Term Disability Claims Review can help start a conversation about the risk of disability. Key findings include the number of disability claims by age, what primarily causes them, why the Social Security Disability Insurance program (SSDI) may not be the safety net wage earners envisioned, and why wage earners need to personally take action to protect their incomes.  CDA research shows that less than half of workers have discussed disability planning with a financial professional, and that most are not remotely aware of the magnitude of their own disability risk or the compromised financial position that a disability would cause.
  • Helping employees understand the value of their income can lead to a discussion of risk and the importance of income protection. Asking employees to list their current and future expenses — and then how they would pay their bills if their income suddenly stopped – is a valuable exercise. CDA’s Disability Divide Consumer Research reveals most of the sources wage earners say they would depend on to get through a period without a paycheck are not adequate to withstand a disability lasting more than a month or two.

Most common income sources:


Where would the money come from to pay bills if you couldn’t work?
Common sources of replacement income cited by consumers (How adequate are they?)
•  Employer-paid sick leave and vacation pay
•  Disability insurance payments
•  Spouse or partner’s income
•  Credit card or loan debt
•  Help from family and friends
•  Retirement savings accounts
•  Government programs
*Source: Council for Disability Awareness


  • Educating working Americans about their need and the disability benefits they have at work helps them value their benefits more highly. Many employees are unclear about what type of coverage they have — or if they have any at all, when benefits kick in after a disability and how much of their income it will replace — and for how long, as well as whether benefits will be taxable. Understanding what protection they already have in the event they experience a disability allows wage earners to know in advance whether they have enough protection, and whether they should consider supplementing their existing protection.
  • When deciding which voluntary benefits to purchase, disability education is critical.

It is certainly in the employer’s best interest to have each individual protected so that in the event of disability, there is income for the person to live on and resources to support returning the employee to good health and to his or her job. A voluntary plan’s success will depend on adequate participation. Increased awareness of the disability risk will boost the plan’s enrollment and will enhance how the plan is valued by employees.


  • Other training and education resources are available. Employees, employers and advisors can take advantage of a new website called Defend Your Income. This site, sponsored by the CDA and its member companies, invites visitors into a virtual dojo to actively learn how to defend their income against different types of potential “attackers.” Through a series of quizzes, visitors can also test their “income defense” knowledge. They can calculate their own Earnable Income Quotient (EIQ) to see what’s at stake. And they are empowered to take action to defend their incomes.


“It is critical for Americans to understand their income risk so they can prepare for the potential financial impact of disability, in the same way they protect their homes, cars and their family’s health from unexpected loss,” said John Roberts, president and CEO of Assurant Employee Benefits and chairman of the CDA’s board. “This is about helping Americans protect their most valuable resource — their ability to earn an income.”