Insuring Your Income
Income is essential to a household's financial security and is closely linked to overall well-being. And, along with many things that are innately important to people — health, home, and family — income is worth protecting.
For a variety of reasons that range from a lack of understanding to a lack of employer-subsidized availability, however, workers don't protect their income at the kind of rates they protect their medical health, oral health, or their end-of-life circumstances. By shedding light on some of the myths and misconceptions around disability insurance, workers and employers can work toward better protecting themselves and their workforce.
Roughly half (51%) of American workers own disability insurance, which provides income protection in the event they become sick, injured, or are unable to work due to health problems.
Disability insurance ownership has been trending down for a decade
Americans' lack of disability insurance coverage is down from previous years, and the decline is accelerating. The 51% of working adults who have disability coverage dropped 12% from 2018 and 18% from a decade ago, in 2013.
Plus, workers' ownership of disability insurance is considerably lower than their ownership of other types of insurance, such as medical (94%), dental (82%), and life (71%).
In fact, only 7% of workers rank income protection among the top three benefits that are most important to them when evaluating job opportunities. That's only slightly above the importance they place on pet insurance.
The decline in disability coverage leaves more employees financially vulnerable
On average, long-term disability leaves are 35 months — or almost three years. This period is longer than most people expect, and most employees aren't equipped to go without a paycheck for that long.1 In fact, 30 percent of Americans report being unable to cover an unexpected bill of $400 without carrying a balance on a credit card or borrowing from the bank or a friend.2
Lost wages can also have devastating long-term financial consequences; 78% of people who file for bankruptcy cite income loss as a contributing factor.3
Workers underestimate their chances of experiencing an income-disrupting event
On average, only 1 in 5 people say they are very knowledgeable about disability insurance.4 And while 92% of employees are concerned about being financially prepared if one of their household's primary wage earners should become unable to work due to an illness or injury, most people still tend to underestimate their need for disability benefits, instead choosing to adopt a "not me" mindset.
This miscalculation, however, can be dangerous and financially damaging. People of all ages, demographics, and professions have roughly the same potential to experience an income-disrupting injury, illness, or condition.
Twenty-five percent of 20-year-olds will have to take a disability-related leave before reaching retirement age. And 30% of US households have had a main wage earner experience at least one injury, illness, or condition that resulted in either a short-term or long-term disability leave (and caused them to miss work for 30 days or more) sometime in the past 10 years.
Thirty-one percent of short-term disability leaves are for maternity, but 4 in 10 consumers do not associate maternity leave with disability insurance
People make incorrect assumptions about what qualifies as a disability, often thinking that the conditions must be catastrophic, debilitating, or permanent. Many do not realize that disabilities are typically the result of less severe injuries and more common conditions such as back pain, depression, and digestive conditions. Maternity leaves of absence, for example, account for almost a third of short-term disability claims.
People need coverage beyond social security disability insurance
Many working adults believe that disabling accidents are generally job-related and therefore covered by workers’ compensation or social security. However, only 9% of all disabling accidents or illnesses occur at, or are related to, work.5 Thus, most claims are not covered by workers’ compensation or social security disability insurance (SSDI). In 2021, less than 2% of American workers missed work because of an occupational illness or injury.6
Nine in 10 covered employees receive disability insurance through employer
The vast majority of adults who own a disability policy obtain it through a group plan with their employer, while only 9% of people have individual plans.
On average, 38% of employers pay the full cost of their disability benefit plans, 47% share the cost with workers, and 17% offer employee-pay-all or voluntary disability coverage.
Large companies are much more likely to offer their employees group disability insurance
The prevalence of employer-sponsored disability insurance among those who have coverage underscores the critical role that workplace benefits play in Americans' financial security. Yet access to benefits varies from employer to employer, with larger organizations much more likely to offer this type of coverage than smaller firms.
Large companies are also more likely to pay 100% of the disability premium, making the benefit more accessible to their employees. This is especially important since 1 in 3 workers cite the cost of coverage as a barrier to acquiring disability insurance. On the whole, however, more employers are sharing the cost of disability benefits with their workers than did five years ago — 47% compared to 39% in 2018.
And the future of employer disability coverage doesn’t look much brighter. Nearly 1 in 5 employers (17%) plan to decrease their contributions or eliminate them altogether, making disability benefits 100% employee-paid.
Most households that experience a disability leave are financially unprepared for it
Just 40% of workers that experienced a disability leave in the past 10 years feel they were well prepared financially prior to the leave of absence. Naturally, disability leaves that were unexpected and related to a serious injury or accident are the most disruptive; workers were less financially prepared for those leaves compared to maternity leaves, for example.
Not surprisingly, workers with no disability insurance at the time of the leave and those with an annual household income of less than $50,000 are the most likely to say their household was not at all financially prepared for them to miss work for an extended period (42% and 27%, respectively).
Only about half of households continued to receive benefits following their most recent disability leave — typically from an employer-sponsored disability plan.
Addressing the coverage gap and reducing risk for American workers
Disability insurance has a handful of myths of misconceptions working against it, from the "not-me" mindset creating a false sense of security to misconceptions around what disability really means. These factors have contributed to a coverage gap that is trending in the wrong direction and that keeps individuals and their families at risk for lost income in the event of an illness, injury, or long-term condition.
To help reduce this risk, employers can start by reviewing their disability insurance plan design and coverage adequacy and making sure they’re aligned with changing workforce demographics and needs — while educating their workforce about the role of disability insurance as income replacement.
Read the report to learn more.