Could You Pay Your Bills If You Were Unable to Work?

A January 2007 survey conducted by International Communications Research on behalf of the National Association of Insurance Commissioners (NAIC) revealed that 56 percent of U.S. adults say they would be unable to pay their bills if they became disabled and could not work for a year or longer.

Despite this sentiment, only 44 percent of respondents indicated they had long-term disability coverage. Of these, 71 percent said their employer provided long-term disability insurance, which would leave them vulnerable to the financial effects of a long-term illness if they become unemployed.

Prepare for the worst, hope for the Best

Not only are Americans unprepared to deal with the financial devastation of a long-term disability, they are also unaware of the chances of becoming disabled. Only 13 percent of those polled responded that it was somewhat or very likely they would become disabled and unable to work. However, the Social Security Administration reports that 20 percent of the nation’s population will become disabled for a year or more before reaching age 65.

The NAIC noted that the majority of people fail to consider the impact of a disability on their ability to remain financially independent. They believe that understanding the role of disability insurance is essential to one’s total financial security.

To help consumers who are considering purchasing disability insurance, the NAIC offers the following guidelines:

• Determine how much money you’ll need to cover your critical expenses such as mortgage payments/rent, food, utilities and transportation should you become disabled. Unless your investments and savings can maintain your current lifestyle for several years, you should consider purchasing long-term disability insurance.
• Understand that having a pre-existing health condition, such as a back problem or heart ailment, could affect your ability to qualify for long-term disability insurance.
• Obtain disability insurance at a young age and find a “non-cancelable” policy. With these policies, your coverage can never be cancelled nor can premiums increase once your policy has been issued, so long as you pay your premiums on time.  A “guaranteed renewable” policy cannot be cancelled, but premiums could increase as stated in the policy.
• Know how long a waiting period your policy stipulates before benefits are paid. The longer the waiting period you select, the lower the premium.
• Remember that many insurance companies will require supporting documentation from physicians to verify whether and to what extent you are disabled before paying a claim.