Podcast: Play in new window | Download (Duration: 45:04 — 103.1MB) | Embed
Subscribe Apple Podcasts | Spotify | RSS | More
An employee signs up for disability coverage during open enrollment, checks the box, and assumes the benefit will stand in for a paycheck if illness or an accident ever stops the income.
It does step in, but the check that arrives replaces less than half of what the household was taking home, once the formula, the cap, and the tax treatment all land. Most people never learn that math until they are already on claim, which is the worst possible moment to discover it.
I hear that assumption in almost every first conversation I have with a working professional. To pressure-test it, I sat down for the Income Protection Journal Podcast with Andy Schafer, Vice President of Workplace Benefits Solutions at Principal Financial Group, who spent 24 years as an actuary pricing disability risk before moving into product development for Principal’s Specialty Benefits Division.
His job for more than two decades was to calculate, across millions of insured lives, how often working people lose their income and what it costs to replace it. When someone who priced that risk for a living tells you what the payout actually looks like, the number is worth sitting with.
Andy walked through the arithmetic without softening it. Employer-sponsored coverage typically replaces 60 percent of pre-disability earnings, and that replacement is calculated on pre-tax income, not on the take-home figure a professional actually lives on.
Why Most Disability Claims Are Sickness, Not Accidents
The other assumption Andy spent years watching the data contradict is the picture people carry of what a disability even is. Insurance marketing leans on crutches, wheelchairs, and hospital imagery, which trains the public to file the risk under accidents. The claims experience runs the other way.
“Accidents are only 10 percent of the disabilities that we cover. The other 90 percent are sicknesses.”
Andy Schafer, Principal Financial Group, on the Income Protection Journal Podcast
That ratio reframes the entire buying decision. A professional who reasons “I work on a computer, so I can push through an injury” is answering the wrong question, because the medical conditions that actually drive disability claims are cancers, cardiac events, autoimmune disease, and the cognitive fog that arrives with serious illness. Andy made the point that being physically able to sit at a desk means little when illness makes it impossible to think, concentrate, or stay awake through a working day. The 90 percent share belongs to sickness, and sickness is precisely the risk people talk themselves out of.
Sitting with the claims data for a career also taught Andy how rarely the event arrives at all, which is the second half of the psychology.
“About three and a half to four out of every 1,000 people that we insure actually file a claim.”
Andy Schafer, Principal Financial Group, on the Income Protection Journal Podcast
A frequency that low feeds the sense of invincibility that keeps professionals from acting. Andy was candid that the “I will never need it” instinct is statistically true for most people in any given year, and that the industry has leaned too hard on fear to sell against it. The rarity is real. So is the size of the loss when the rare event lands on one household instead of a thousand.
What Individual Disability Insurance Adds to a Workplace Policy
Two forces have quietly lowered how often working people file. The pandemic normalized remote and hybrid work, and Andy described how that reshaped the risk. A worker recovering from a stage-two cancer diagnosis who once would have filed for short-term disability, because coming into an office was impossible, can now often keep contributing part-time from home. People return to work faster, and sometimes never leave it, which pulls claim frequency down and, in turn, brings the cost of income protection down for everyone in the pool.
That good news for pricing does not fix the shortfall inside a single household when a serious sickness does stop the income. This is where I spend most of my time as an advisor. After three decades placing coverage for professionals, the same correction comes up again and again, and Andy landed in the same place from the carrier side: take a hard look at the benefit summary before you need it, and if the employer-sponsored replacement leaves a household living on less than half its prior income, that is what individual coverage is built to close. An individual disability income policy stacks on top of the group benefit, can lift total replacement toward 70 percent of pre-disability earnings, and moves with the professional from job to job rather than ending the day they change employers.
Portability is the piece that Andy, who spent his entire career at one company, flagged as the modern blind spot. Most working professionals now change jobs several times, and each move resets the group coverage. A new employer may offer a weaker benefit, or none, and a health change in the interim can foreclose the chance to buy individual coverage on good terms. That is the argument for purchasing young, while insurability is intact and premiums are lowest, and for owning a policy the employer does not control. The full conversation, including the soundbite round where Andy names the odds a 35-year-old actually faces, is worth hearing in his own words on the Income Protection Journal Podcast.