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Lessons from the Pandemic:  Disability Insurance

Lessons from the Pandemic: Disability Insurance

June 04, 2020

Everybody is living on the edge. I think this is one of the real lessons people have been learning from the global pandemic and the resulting economic fallout. In the financial planning world, one of the first things that is taught is for people to keep 3 to 6 months of expenses in an emergency fund. Yet, a story on ABC News back in May of 2019 said 40% of Americans don't have $400.00 in the bank or in cash reserves to cover an emergency. 27% of those people would have to sell something or borrow to come up with the money.

Don't despair! Gigantic companies are in the same boat. We saw huge corporations asking the government for assistance or bailouts after two weeks without customers. I'm sure there will be businesses that will permanently close due to this economic collapse.

Okay, what does this have to do with disability insurance? While the global pandemic has been shown on the news recently, there are situations happening everyday where people lose their ability to earn an income because of an accident or an illness and are thrown into financial distress. Don't let this happen to you. Here are some interesting statistics.

     1. A 35-year-old has a 50 percent chance of becoming disabled for a 90-day period or longer before age 65. About 30 percent of Americans ages 35-65 will suffer a disability lasting at least 90 days during their working careers. About one in seven people ages 35-65 can expect to become disabled for five years or longer.

     2. More than 375,000 Americans become totally disabled every year, and approximately 110 million Americans don't have long-term disability coverage. Approximately 8 million adults have some disability that limits or prevents them from working.

     3. Nearly half (46 percent) of all foreclosures on conventional mortgages are caused by a disability vs. only 2 percent are caused by the homeowner's death.

     4. Social Security Disability Insurance is available to people of all incomes, but only if they have worked at least 10 years before becoming disabled. The Social Security Disability Insurance program pays an average of $722 per month, and the disability criteria are so strict that only about 35 percent of those who apply for benefits actually qualify for them.

Source:, from the MDRT

Disability insurance should really be called income protection. For most people, their ability to earn an income is their biggest asset, by far. Here's a simple example. If a 35 year old earns $50,000 per year and gets a 2% raise each year until the age of 65, that person will earn $2,068,972. The value of that stream of income in today's dollars assuming a 2% inflation rate is $1,142,219. People insure their cell phones, yet don't think about insuring their million dollar asset.

I always ask people, if you had a money machine in your backyard spitting out $50,000 per year, would you insure it? Of course you would! You are the money machine! Make sure your greatest asset is properly insured with disability insurance.

If you have questions about this or want to make sure your money machine is covered, feel free to reach out to me at