Don't know much about disability
Employees know very little about disability coverage. But when they learn about it, they often want the coverage and are willing to pay for it, recent surveys find. The Consumer Federation of America and Unum national survey of 1,200 employees finds that only 13% know "a lot" about disability insurance, and less than half (47%) know what its benefits are.
Majority want coverage
Yet, when informed about the insurance, a large majority (90%) want the coverage, and 86% are willing to pay half of a $30 average monthly premium, while just over half (56%) are willing to pay the entire premium in order to gain income protection should they become disabled - a life event that affects nearly a quarter of all Americans. According to a 2012 Social Security fact sheet, almost one-in-four of today's 20-year-olds will become disabled before reaching age 67.
Employees typically learn about disability insurance from their employers, who often have competing priorities. Disability insurance education can rank low on that list, explains Stephen Brobeck, CFA's executive director.
"If employers do a good job of informing employees, they will probably be well-informed ... but keep in mind the employers have a lot to be concerned about, even in light of employee benefits," Brobeck says. "[Employees and employers are] more concerned with health insurance than disability insurance, as they are more likely to use that health coverage in the near future.
"That does not mean disability coverage is not important, but it's easy to understand why many employees would not know that much about group disability insurance," he adds.
And since only a third of employers nationwide offer disability coverage, a majority of workers have never even heard of the coverage, says Scott Maker, senior vice president of government affairs at Unum in Portland, Maine.
Disability insurance has traditionally been marketed more toward brokers, which also plays into the lack of awareness. "Unlike other coverages like 401(k) and health care, the marketing [for disability insurance] has never been targeted at the consumer," says Tom Klett, vice president of disability marketing at AIG Benefit Solutions. "Absent education, obviously you will find people who don't value it."
Paying for it
Both Unum and AIG say that when consumers learn about the coverage, they are willing to pay for it, but it often takes a back seat to health insurance.
"There has been a focus on shifting more cost to the employee [for disability insurance], but that's also where the health care cost has been shifting," Klett says. "People will pay for [disability insurance] but when it comes to open enrollment time, they have a limited budget and are asked to cover an increasing portion of their health care costs, so there is nothing left over."
A long-term disability policy typically replaces 60% of income, so for an average policy fee of $25 to $30 a month, it may provide a return in the long run. "Like any type of insurance, you hope you don't have to use it," says Maker. "People insure their cell phones, [their] boats, but they don't insure their most valuable thing - income. There is no more important thing to insure, and if you get it through [the] employer, [there is] no less expensive place to insure it."
To close the gap for those employees who do not have coverage, CFA says it's hoping the government will help spread awareness.
The CFA is talking with Washington now about legislation that would authorize an awareness campaign, "because that's the most effective way to reach the most number of people," Brobeck says, indicating that may include working with the Department of Labor or Small Business Administration.
An awareness campaign is "one of the goals we hope to achieve working with colleagues in our industry, with policymakers in Washington and with nonprofit partners like CFA who understand the great need [of] consumers for this type of coverage," he adds.
Creating awareness among policymakers is the first step, Maker says, as "they need to understand that this is critical for consumers, but also good for government."
He points to a Charles River Associates 2011 survey that found that access to disability insurance in the workplace saves as many as 575,000 families annually from slipping into poverty - and the government up to $4.5 billion per year in public assistance costs. "That's a compelling argument from a taxpayer viewpoint that this is important coverage," he says.