The financial impact on individuals who become disabled can be staggering if they lack disability insurance-as high as 20 times a person’s annual salary, finds a new study released by the nonprofit LIFE Foundation and America’s Health Insurance Plans (AHIP). Conducted by the global consulting firm Milliman, Inc., the study, titled “The Impact of Disability”, is a rare look at the consequences facing individuals who become disabled and can’t work, and the level to which various types of disability income protection can help to reduce the financial impact. The findings reveal that in the absence of insurance, a majority of Americans would likely have to make difficult financial decisions, or even drastic lifestyle changes, in order to cover the costs associated with disability, regardless of whether the disability is short- or long-term.
Examining four representative scenarios of newly disabled individuals, the study found, for example, that the financial impact of a disability – equal to lost income plus expenses – to be as high as nearly $1 million for a 40-year-old, single male earning $50,000 per year who suffers a long-term disability lasting until age 65 – nearly 20 times his pre-disability earnings. The study also shows that the costs associated with short-term disabilities can be quite significant – equaling one to nearly two times income in some cases for a disability lasting just two years.
The study by Milliman found that those hit hardest by the costs resulting from a disability are single individuals, who do not have a second income to rely on; lower-income individuals, because added expenses are greater relative to the lost income; and those who suffer longer-term disabilities, since both income and expenses tend to increase with inflation, raising the cost of disability over time.
The release of the “Impact of Disability” study from LIFE and AHIP coincides with Disability Insurance Awareness Month, an industry-wide campaign designed to encourage working Americans to take stock of their need for disability income protection.
Below is the full report:
America’s Health Insurance Plans and
The Life and Health Insurance Foundation for Education
Prepared by Milliman, Inc.
Daniel D. Skwire, FSA Robert W. Beal, FSA
Consulting Actuary Consulting Actuary
Milliman, Inc. Milliman, Inc.
May 2009
Table of Contents
I. Introduction ………………………………………………………………………………………………………………………………. 1
II. Highlights ………………………………………………………………………………………………………………………………… 2
III. The Financial Impact of Disability ………………………………………………………………………………………………… 3
IV. Sources of Disability Income ………………………………………………………………………………………………………. 9
V. The Non-Financial Impact of Disability ……………………………………………………………………………………….. 18
VI. Conclusions ………………………………………………………………………………………………………………………….. 21
Appendices
A. Projection Methods and Assumptions………………………………………………….A-1
May 2009 Page 1
I. Introduction
Research shows that many Americans underestimate their risk of experiencing a disability and overestimate the
resources available to them in such an eventuality1. These misconceptions lead to a poor understanding of the full
impact a disability can have on an individual’s life. The greatest financial contributor to the cost is the income that is
lost when an individual is unable to work as the result of an illness or accident. However, the expenses that arise for
healthcare and other items related to the disability add significantly to the cost. In addition, there are other costs
related to overall well-being, which are more difficult to quantify. As the length of disability increases, expenses can
accumulate rapidly, income is lost, and individuals are often forced to make choices about how to cover their
expenses. In the absence of private insurance coverage or adequate disability income benefits provided by the
government, these choices are harder. Individuals with disabilities may be forced to make significant lifestyle
changes, rely on the generosity of family and friends, incur sizeable amounts of debt, or face bankruptcy.
The Life and Health Insurance Foundation for Education (LIFE) and America’s Health Insurance Plans (AHIP)
engaged Milliman, Inc. to prepare this report examining the impact of disability on individuals in the United States.
The report focuses on four representative scenarios and examines the combined effects of lost income and increased
expenses that result from disability. It then examines the choices faced by individuals who need to cover these costs
and the potential sources of disability income that are available to help defray them.
Milliman’s work is prepared solely for the use and benefit of LIFE and AHIP, to be made available in its entirety by
LIFE and AHIP on their Web sites and to the media. The paper may not be published in any other form without
written permission from Milliman. Milliman does not intend to benefit any third-party recipient of its work product. The
findings presented in this report are based on the assumptions described in Appendix A and the circumstances of the
examples presented. The financial impact of a disability for any particular individual may differ from those presented
in this report.
1 2009 Life and Health Insurance Foundation for Education online omnibus survey of 1,007 adult Americans.
May 2009 Page 2
II. Highlights
The following are key findings from this report:
- The financial impact of a disability can be measured as a combination of lost income and increased expenses.
