Likelihood of Disability

When we talk about disability as that term relates to the disability income products we sell, we need to realize that it has a specific meaning within the context of the coverage.  It means meeting a specific definition in a particular policy -- and those definitions can be and are quite different from each other.  

The impact of those differing definitions is that a policyholder may be considered disabled or not depending upon the disability income policy under which he or she is insured. We will explore the variation in those important definitions and their consequences for insureds in our next lesson.  For now, however, let's look at disability from a less legalistic perspective and consider disability in more human terms.  

When our prospects consider what it means to be disabled, their frame of reference may be quite a lot different.   They seldom think of disability in terms of their meeting -- or failing to meet -- a particular definition.  Instead, they think in terms of an illness or injury that causes them to lose their income.  Their mortgage or rent payments continue to be due and their children still need to be fed, but their income to make those payments has stopped.

But, just how likely is it that any individual will be disabled according to our more-human definition?  The answer may startle you.  At most ages, statistics tell us, the probability of disability occurring is from 2½ to 4 times more likely than that death will occur at that age!  

Let's consider the likelihood of disability from a somewhat more "scientific" perspective and look at a Probability of Disability table developed from the 1985 Commissioners Disability Table.  What the table tells us is what the chances are that anyone will become disabled during their working years.  

 By looking at the table, we can see that a 40 year-old has a 31% chance of becoming disabled and suffer a disability that will last at least 90 days during his or her normal working life.  


PROBABILITY OF DISABILITY*
(Probability of Disability Lasting 90 Days or More)
Present Age
Over Duration of Years
Probability of Disability
  25
  40
  37%
 30
 35
 36%
 35
 30
 34%
 40
 25
 31%
 45
 20
 28%
 50
 15
 25%
 55
 10
 20%
*Developed from the 1985 Commissioners Disability Table


While that information is interesting, it is a little difficult to really understand its impact unless we extrapolate it to a group of individuals.  By applying that percentage to a group, it can give us some startling insights.  

Since the likelihood of disability occurring before age 65 to someone age 40 is 31%, the table is telling us that there is an approximately 3 in 10 chance of becoming disabled if you are 40 years old.  In a group of 10 individuals, all of whom are age 40, the statistic tells us that 3 out of that group will be disabled in the next 25 years -- and the disability will continue for a period of at least three months. The statistics are very sobering when we view the prospect of disability in this way.

 An individual's general health plays a large role in whether or not anyone becomes disabled.  In addition to an applicant's current health, however, the likelihood of his or her disability is significantly affected by 3 factors:

Age
Occupation
Lifestyle


Age

You may have noticed on the table we just looked at that, contrary to conventional wisdom, the likelihood of disability seemed to be declining as the individual aged. That isn't the case, however.  Although we noted that the probability of disability occurring before age 65 declined as the age increased, that was due principally to the shortening of the period being considered.  While the period considered was 40 years when the individual was age 25, it diminished to only 20 years at age 45.  

Not unexpectedly, the probability of disability actually increases as the individual ages.


 Occupation

It should be clear that an individual's occupation plays a major role in whether or not he or she will become disabled.  Although we will consider this at much greater length when we discuss the definitions of disability, simple intuition would suggest that a bricklayer is normally exposed to more disability-causing hazards in his or her daily duties than an attorney.  

When we look at this more closely, later in this course, we will see that this greater likelihood of disability resulting from occupation has an important bearing on both the cost of the coverage and its quality.


 Lifestyle

The third principal factor in any individual's chances of becoming disabled is lifestyle.  When we think of "lifestyle," we need to think of the applicant's smoking and drinking habits as well as his or her avocations.  

While smoking and excessive drinking of alcohol have a well-known connection to the chance of disability, your client's new mountain-climbing hobby may also play a role.



Groups

Earlier, we saw that the likelihood of disability during an individual's working years is significant.  It may be 4 times as likely as death at some ages.  But what about the probability of disability when we consider a group of individuals, rather than a single person?  

It should be expected that the probability of one disability occurring increases dramatically when we switch our focus from the individual to a group.  Consider the probability of disability occurring in a group of men.


PROBABILITY OF DISABILITY*
(Probability of One Long Term Disability Occurring in a Group of Men)
Age
Number Of Members In The Group
2
3
4
5
6
25
36.5%
49.4%
59.7%
67.8%
74.4%
30
35.4%
48.0%
58.2%
66.4%
73.0%
35
34.2%
46.7%
56.7%
64.9%
71.5%
40
32.9%
45.1%
55.0%
63.2%
69.8%
45
31.1%
42.8%
52.5%
60.6%
67.3%
50
28.3%
39.2%
48.5%
56.4%
63.1%
55
23.4%
33.0%
41.4%
48.7%
55.1%
*Calculated from the Society of Actuaries' DTS Experience Table.
.

What the group chart tells us is that the likelihood of a single disability increases significantly when we consider a group.  As the group size increases, the probability approaches 100%.  This statistic alone can demonstrate dramatically to the business executive the need to provide a sick pay plan -- a coverage form that we will discuss later in our course.