Employers Should Encourage Purchase Of Disability Insurance

Because most workers underestimate their chances of becoming disabled, employers should consider sponsoring group disability insurance plans and do more to educate their employees about the need for income protection, a study by The Hartford Financial Services Group recommended.

Based on a survey of 600 working Americans between the ages of 18 and 65, the study showed that most respondents lack an understanding of both the risk of becoming disabled and the cost of disability income protection insurance. While 85% of respondents said they have health care coverage and 72% indicated they have life insurance, just 42% reported having short-term disability (STD) insurance, and 34% said they have long-term disability (LTD) coverage. The survey showed that relatively few workers pay for LTD and STD coverage themselves: 8% of respondents said they had employee-paid STD insurance, and 7% reported having employee-paid LTD benefits.

Results also revealed that employees have distorted perceptions about the causes of disability. When asked what they believe are the most common disorders associated with short-term disability, respondents estimated on average that 74% of claims are caused by accident or injury, 14% by musculo-skeletal or back problems, 9% by pregnancy, and 3% by other conditions. In fact, researchers said, statistics show that accidents and injuries account for 13% of STD claims, musculoskeletal or back problems for 19%, pregnancy for 21%, cancer for 7%, circulatory system problems for 6%, digestive system problems for 6%, and other conditions for 28%.

Respondents were also shown to have misperceptions about the causes of long-term disability, tending to overestimate the role of accident and injury and underestimate the occurrence of more obscure ailments. Researchers observed that associating disability primarily with accidents can give a false sense of security to people who do not work in a dangerous environment or believe themselves to be careful.

In addition, the study found that many people assume they can draw upon sources of income in disability that are unlikely to be available to them. When asked how they expect to replace their income in the event that they become disabled due to non-work-related causes, 49% said through disability insurance, 27% through unemployment benefits, 23% through Social Security, 21% through medical insurance, 18% through workers compensation, and 12% through their employers. Researchers said these results indicate that many people misunderstand the role of certain types of benefits, believing they offer forms of protection that they do not, in fact, provide. When employees put their trust in the wrong program, researchers added, they leave themselves and their families vulnerable, without even knowing it.

When asked why they lacked disability coverage, 42% of respondents with no STD or LTD insurance cited cost, 17% said their employers do not provide it, 16% said they consider themselves to be healthy and unlikely to become disabled, and 11% said they do not know enough about disability insurance to make a decision. Researchers said these results suggest that respondents tend to overestimate the cost of disability insurance and underestimate the percentage of income that is typically replaced by disability coverage.

However, when respondents were offered a hypothetical disability insurance plan providing 60% to 70% replacement of pre-tax income at a cost of $180 a year, more than three-quarters of employees surveyed indicated they were likely to purchase the insurance.

Researchers recommended that em-ployers not only offer a group disability plan to their employees, but that they make efforts to educate workers about the actual costs and benefits associated with income protection products.

Commenting on the study, Dick Mucci, executive vice president of The Hartford’s group benefits division, said, "Consumers’ confusion about disability is a cause for concern because nearly one-third of us will suffer a serious disability in our lifetime. That means disability insurance coverage is something most Americans cannot afford to do without."

The study suggests, Mucci added, "that Americans consider disability insurance a valuable financial protection tool when they understand its true value and cost."