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Article 2 of 6 in Disability Insurance - Knowing and Covering the Risks |
The actual risk of disability |
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This is the second of five articles that describe the risks of becoming disabled. Part one offers an overview of the risk and consequences; part two describes the actual risk of disability; part three deals with the financial impact of disability; part four with the limitations of “safety net” programs; and part five with the relationship between private disability insurance and “safety net” programs.
Many people believe that any disability will be temporary, but, in reality, once disabled, many people are never able to work again. At least 1.5 million Americans are no longer able to work because of a disabling illness or injury.
The following data from the Society of Actuaries 1987 Group Long Term Disability Basic Table show, by age at onset of disability, the percentage of workers who remain disabled over time after a serious injury or illness.
| Years of Disability | Age at Onset of Disability |
|---|
| |
35 |
45 |
55 |
| 1 |
56% |
65% |
77% |
| 2 |
39% |
50% |
66% |
| 3 |
32% |
44% |
60% |
| 4 |
29% |
41% |
57% |
| 5 |
27% |
39% |
54% |
| 10 |
22% |
32% |
44% |
As this chart shows, once a person has experienced a disability that lasts at least 90 days, that person may remain disabled for a much longer period of time – perhaps for a lifetime. Without proper planning, any extended disability can have a devastating impact, both financially and emotionally.
The actual risk of disability is relatively high. In fact, as noted in Part One, workers at age 35 face almost a 1 in 4 chance of suffering a disability lasting 90 days or longer at some point in their careers. And, as the chart above shows, a significant percentage of those workers will remain disabled much longer. If you are disabled, you will not be able to contribute to the household income and you will also require resources to pay for food, clothing, shelter and any special care you may need because of your disability.
For most of us, the ability to earn a living is our most important asset. It only takes some simple math to understand just how important, without even considering the impact of inflation on salary or potential interest on savings—both of which would increase the total. Assume that a person becomes disabled at age 35 and is unable to work to retirement at 65: if that person is earning $25,000 a year, he will lose $750,000 in lifetime income. If he is earning $50,000 a year, the loss will be $1,500,000, and at $100,000 a year at time of disability, it will be $3,000,000. If he becomes disabled at 45, he will lose $500,000, $1,000,000 and $1,500,000, respectively, and even if he is not disabled until 55, he will still lose $250,000, $500,000 and $1,000,000. At whatever age or earning level, the loss of income is significant if you become disabled.
Obviously, you should protect against this kind of loss.
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