October 12, 2011


Our guest asks:

What did you mean that disability insurance is more important than major medical insurance?

OnlineAdviser responds:

Disability insurance is a type of health insurance that pays you for lost income rather than paying a doctor or hospital for an outstanding medical bill. In short, lack of disability insurance is far more likely to lead to financial ruin for a healthy working person than lack of major medical insurance.

Inability to pay the full amount of your medical bills certainly would cause financial stress. Yet no one who has basic health insurance is denied access to the health care system or loses their core financial assets (like house, car or retirement account) due to inability to pay a doctor or hospital bill. In direct contrast, it is reported that loss of income due to accident or illness is the #1 contributor to home foreclosures, credit defaults, personal bankruptcies and automobile repossessions.

Another way to look at the issue is to consider the relative probability of each type of risk. The probability of a healthy working person incurring a medical bills that would cause financial ruin is relatively small. The risk of incurring a loss of income due to injury or illness large enough to cause financial ruin is approximately ten times greater¹. In this context, it is easy to draw a conclusion as to which type of health insurance is more important to consumers.

Over two-thirds of Americans do not have adequate disability coverage. This means that over 66% of our fellow citizens would suffer a severe financial blow if they became unable to earn a living due to a disability. Yet the cost of disability insurance is usually much less than the cost of major medical insurance. For this reason, we believe that disability insurance should be a higher priority in personal financial planning than major medical insurance.

We also note that public policy and laws like the 2010 federal health reform act are geared toward protection of the medical insurance only and do not advance protection of individuals' income due to medical issues. For this reason, it seems even more important to take a bold advocacy stance in support of the importance of individual disability insurance.

Unfortunately disability insurance is not available through automated online enrollment (like most major medical insurance) so it is best to speak with an adviser one-on-one about this important coverage. Freedom Benefits offers referrals to an insurance sales agent or access to user-driven OnlineNavigator support via Web and email at no charge as well as a premium pre-paid telephone support that can be used for more extensive financial planning issues specifically like finding the right disability insurance.

¹ We omitted any references for the statistics and point out that this "10X greater" is a rule of thumb commonly cited by financial planners for illustrative purposes.

return to OnlineAdviser Q&A table of contents

 

---