Sources of Disability Income
Now that we have considered the probability of disability, let's examine the traditional sources of income that our client may have available. For most people, the sources generally available to provide an income during their disability are:
Disability Income Insurance
Let's briefly consider each of these potential sources.
When we examine existing savings as a source of disability income, we need to realize that the tradition of saving is not one that has generally taken root in this country. The U.S. personal savings rate is among the lowest in the industrialized world. At a savings rate of barely 4% a year, the U.S. has fallen well behind many other nations.
Furthermore, when Americans save money, it is generally to be able to purchase a particular consumer item. It may be a down payment for a house or a car. It may involve the desire for a new television set, a vacation or some other consumable.
Even if our prospect has existing savings we need to ask ourselves and our prospect whether he or she can be sure the savings will be sufficient -- without knowing how long a disability might last. And, would the prospect be willing to wipe out those savings to provide income during disability.
Remember, even if someone saved 10% of his or her income each year, one year of disability can wipe out as much as 10 years of savings!
But, even if using existing savings is an unlikely option for most people, what about a spouse's returning to the job market. For many families, this option is as unproductive as using existing savings. In fact, the likelihood of an unemployed spouse returning to the workplace was once far greater than it is today. We are faced with several, relatively recent, phenomena:
Dual income families
The nuclear family of a bygone era is just that -- bygone. The family consisting of a working husband, a school-age child and a stay-at-home mom has generally ceased to exist on any broad scale. Most families today are two-income families, and those families depend upon both incomes to meet their basic monthly bills. In many cases there is no unemployed spouse to return to the job market.
Furthermore, we have seen a decline in the number of unskilled and semi-skilled jobs as many companies and industries reduce their workforce. We can refer to this phenomenon as "downsizing." "rightsizing" or by some other euphemism. What it means is that the market for many skills has changed and, in many cases, contracted or disappeared.
Finally, prolonged absence from the job market may mean that important technological advances have occurred with which the spouse is unfamiliar, further worsening the possible chances of employment in a previous occupation. If a spouse is not currently employed outside the home, it is extremely unlikely that appropriate employment is readily available.
In the unlikely event that a spouse can find a job to help support the family during a period of the breadwinner's disability, can she really be expected to take over the job of breadwinner and still function as a parent, a spouse and a part-time nurse?
Borrowing to pay bills during disability may be the biggest financial disaster of all. While borrowing from the usual sources, i.e. from banks may not be available because of the lack of employment resulting from the disability, many people may be able to borrow from existing credit cards. At the 15% to 22% interest rates charged by these credit sources, it is usually not very long before a bad financial problem becomes a catastrophic one.
Without a current income source, borrowing may be difficult or impossible. However, even if borrowing is an option -- from credit cards, for example -- it is an expensive option. At some point, someone must repay the loan principal plus interest.
Once you have discussed these three choices, it should be clear to any insurable prospect that the only sensible alternative is disability income insurance. At annual premiums that often are as low as 4 or 5 cents for each dollar of monthly benefit provided, disability income insurance offers the only reasonable alternative.
Disability income coverage provides income exactly when it is needed -- when disability strikes. And, it changes the possible financial catastrophe of disability to a reasonable and budgetable monthly premium.