Mary Quist-Newins, MBA, MSFS, CFP®, ChFC®, CLU®
When we think about risk, many of us think about skydiving, skiing accidents, or injuries from a dangerous work environment. And many of us imagine thrill-seekers and men as the most at risk for disability. The scary reality is that the opposite is true.
Research I conducted as professor and director of the Center for Women and Financial Services at The American College found that women are more likely to face disability than men. And the majority of disabilities aren’t caused by risky undertakings or accidents that occur at work. Currently, mental illness, cardiovascular disease, cancer, and arthritis are among the leading causes of disability in the United States. Unfortunately, women have an increased vulnerability in each of these categories. With this in mind, women should prepare for the likelihood that they will one day face a disability that forces them to leave the workforce—temporarily or permanently.
The Risks of Being Unprepared
Death and disability are two topics many of us would prefer to avoid talking about. But just as we create wills and develop an estate plan, it’s important to consider what you would do if you experienced a disability.
Ask yourself this, how would you manage financially if you were impacted by a disability? What is your game plan? Should you be unable to work for three months or longer, how would you supplement your income? For most people, the answer is, they couldn’t. In The American College study I mentioned earlier, 62% of people are not confident their family would have enough money to maintain their current lifestyle, 42% worry they would not be able to afford the medical care they need, and 30% are unsure if they would have enough money to cover even basic expenses (1).
Among women, there’s an even greater concern. Women are almost twice as likely as men to think their cash reserves would last less than one month in the event of a disability. Single women are especially vulnerable, with more than one in four believing the consequences of disability would be totally devastating.
The Protection Gap
For most people, their greatest asset is their ability to earn an income. To illustrate, say you earn $50,000 per year. Over a career of 40 years, you would potentially earn more than $2 million (without any adjustments for inflation or pay increases). If you couldn’t work for five years, you’d potentially lose $250,000.
Despite potentially devastating financial consequences of a disabling illness or injury, many people don’t consider disability income insurance or other strategies designed to help protect them (2). Given that women are more likely to become disabled and require disability benefits for longer periods of time, a lack of protection or under protection has the potential to leave a significant gap in women’s financial plans.
Without an adequate disability game plan in place, many people are forced to rely on cash reserves to fund their disability expenses. While your health insurance may cover your medical expenses, it won’t cover your lost income. And those who are fortunate to have disability insurance through work often have a false sense of security about their coverage — they don’t realize group coverage generally includes only a percentage of base salary (usually 50 – 60%) and excludes income from bonuses or the value of employer-paid benefits. Many group plans also have other important limitations to be aware of, like no provisions for inflation, broad definitions of disability and integration with Social Security. Plus, if your employer pays all or part of the premium, chances are the benefit is taxable. These limits can potentially erode the value of benefits or the likelihood of payment.
One thing women can do immediately is to learn more. The Council for Disability Awareness is a great resource. Education and knowledge are essential for feeling empowered and in control of your finances and important decisions. A trusted advisor can also shed light on disability income insurance policies, and assess whether they are appropriate for your situation.
Remember, what you don’t know can hurt you. There are major knowledge gaps and misperceptions about the very real risks of disability. Starting the conversation with your advisor today can help you start planning for tomorrow.