Who needs Individual Disability Insurance?

Work Wisdom

Who needs Individual Disability Insurance?

Did you know more than 1 in 4 of today’s 20-year-olds will become disabled before reaching age 67? It’s a statistic that’s been constant for the decade I’ve worked in the insurance industry. It’s a reminder of how life is unpredictable, and for more than a quarter of us, it means we’ll be thrown a curveball that will prevent us from working.

A break from work might be good for some, but for most, it’s time without a paycheck.  Unum* research shows nearly two-thirds of workers could cover their bills for only three months or less with existing savings if they lost their primary income. Once the savings account is empty, workers say they’d turn to family or friends (37%), dip into retirement savings (36%) or use their credit card more (35%) — all short-term solutions at best, with potentially serious long-term implications.

That’s where disability insurance can help. It replaces a portion of your income if you’re sick or hurt and unable to work. It can be offered as short-term coverage — typically between three and six months — or long-term coverage that can last several years or until retirement. It can cover accidents on the job, off the job, or both.

For most, it’s an effective way to protect your finances while you focus on getting well. However, for high-wage earners, this might not be enough.

“This can happen for several reasons,” explains Branden Pierson, national sales leader for executive benefits for Unum. “Variable income such as bonuses or commissions, which are often part of a high-wage earner’s income, might not be covered by their group long term disability plan. Also, employer-funded long term disability benefit maximums are usually based on more modest income levels, often leaving high-wage earners underinsured.”

Employer-funded benefits can be taxable, which can further erode the coverage gap between monthly income and the amount a long term benefit will pay, usually up to 60% of your monthly paycheck, which tends to put high-wage earners at greater financial risk.

Individual Disability Insurance (IDI) can help bridge this coverage gap, acting as an extension of your long term disability plan. Individual Disability Insurance pays an additional monthly benefit if you’re out of work due to a covered illness or injury and can cover income from bonuses, commissions, and other incentive pay.

Generally speaking, anyone with a gap in coverage due to long term disability benefit maximums or uninsured earnings may be eligible for IDI coverage. If any of your compensation is tied back to performance of yourself or your company, it pays to look into IDI coverage to see how it might be able to help in the event of disability.

*Online survey of 1,000 employed consumers by DYNATA on behalf of Unum, April 1–6, 2020.

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