Millennials: Secure Your Future With Insurance

Millennials are often accused of having an invincibility complex, with many believing that injury or illness is unlikely at such a young age. However, the odds of being unable to work due to sickness or injury are greater than the odds of premature death. Disability insurance is therefore something that millennials should consider.

Millennials make up almost half of the American workforce, and many will make up the global workforce in the coming years. Despite this, many are not investing in disability insurance. This could be because they believe disability will not happen to them, or that it only results from injury. However, chronic diseases such as cancer and heart disease are leading causes of disability, and one in four 20-year-olds will experience disability prior to retirement.

Disability insurance can provide financial security and peace of mind, and millennials should consider how they would support themselves if they were unable to work.

It's unlikely that millennials consider the possibility of being unable to work due to sickness or injury

Millennials are often said to have an "invincibility complex", where they prioritise other aspects of their life over their health. This is because they don't anticipate becoming injured or ill at a young age. As a result, it is unlikely that millennials consider the possibility of being unable to work due to sickness or injury. However, the odds of being unable to work because of sickness or injury are greater than the odds of premature death. This is something millennials should consider when planning for retirement.

Millennials make up close to half of the American workforce and are set to make up approximately 75% of the global workforce by 2025. Statistically, 50% of 35-year-olds can expect to be out of work for 90 days or more before reaching the age of 65. This equates to three months or more of lost income for those without disability insurance.

Millennials need to be reminded that their ability to earn an income is their biggest asset. For example, a 30-year-old earning $100,000 a year will gross $3.5 million over the course of their working years. If that money cannot be earned due to sickness or injury, the potential for financial failure rises greatly. Without income, one cannot spend, save, invest or donate.

Millennials should ask themselves: "Would I feel comfortable with my insurance choices if I were unable to get up tomorrow due to a severe injury or illness?" If the answer is no, it's time to start thinking about disability insurance.

Your earning potential is your greatest asset

Millennials are known for their "invincibility complex", often prioritizing other aspects of their lives over their health. However, it is important to recognize that your earning potential is your greatest asset, and this needs to be protected.

The odds of being unable to work due to sickness or injury are greater than the odds of premature death. As morbid as it sounds, millennials should consider the possibility of waking up one day and being unable to get up due to illness or injury. While workers' compensation and employer-provided group short- and long-term disability coverage exist, these may not always be available or sufficient.

To protect your earning potential, consider purchasing an individual disability income policy to supplement or provide additional coverage if your employer does not offer a disability plan. When choosing a policy, it is important to understand the different definitions of "disability" and select a plan with an appropriate elimination or waiting period. Typically, insurance companies will provide about 66% of your gross wages, so you may need to "fill the gap" with an additional individual policy if your employer's plan does not cover enough.

By recognizing and investing in your earning potential, you can safeguard your financial future and ensure you have the resources to achieve your goals and aspirations.

You may need to supplement your employer's insurance plan

Millennials tend to prioritize other aspects of their lives over their health, believing that they are unlikely to experience injury or illness at a young age. However, the odds of being unable to work due to sickness or injury are greater than the odds of premature death. Therefore, millennials should consider disability insurance to protect their income.

While many employers offer group short- and long-term disability coverage, this may not always be sufficient. Employer-sponsored insurance policies typically cover around 60-66% of lost income and often include an “elimination period” of up to two years, during which no benefits are paid. Additionally, if your coverage is paid with pre-tax dollars, any benefits received may be taxed. These factors can leave individuals with a significant gap in their income during a difficult time.

To address this, millennials may need to purchase an individual disability income policy to supplement their employer's group plan. Individual policies can cover up to 90% of an individual's income and typically do not include lengthy elimination periods. Benefits received from individual policies are also usually tax-free. Furthermore, individual policies remain in effect even if employment ends, provided that premium payments are maintained.

When considering an individual disability income policy, it is important to evaluate the definition of "disability" used by the insurer. The "gold standard" is considered "own occupation – noncancellable," which means that as long as premiums are paid, the policy remains in effect and the individual is considered disabled if they are unable to perform any of their job responsibilities. Other definitions, such as "any-occupation," define disability more narrowly and may not provide coverage if the individual can work in any occupation, rather than their specific field.

Understand the definition of 'disability'

When considering disability insurance, it is important to understand the definition of a disability. According to the World Health Organization, disability has three dimensions:

• Impairment in a person's body structure or function, or mental functioning. Impairments include the loss of a limb, loss of vision, or memory loss.
• Activity limitation, such as difficulty seeing, hearing, walking, or problem-solving.
• Participation restrictions in normal daily activities, such as working, engaging in social and recreational activities, and obtaining health care and preventive services.

The legal definition of a person with a disability, as outlined by the Americans with Disabilities Act (ADA), is a person who has a physical or mental impairment that substantially limits one or more major life activities. This includes individuals with a record of such impairments, even if they no longer have a disability, and those regarded as having a disability.

It is important to note that the ADA definition of disability is a legal term and differs from the medical definition. The ADA definition focuses on the impact of the impairment on major life activities, rather than solely on the impairment itself.

Disability insurance is designed to protect individuals from financial loss due to a disability that affects their ability to work. When considering disability insurance, it is crucial to understand the specific definition of disability used in the insurance policy. The "gold standard" in disability insurance is the "own occupation – noncancellable" policy, which considers an individual disabled if they are unable to perform each and every responsibility of their current position. This definition ensures that the policy remains in effect as long as premiums are paid and cannot be cancelled or increased.

Other definitions of disability in insurance policies include "any-occupation," which defines an individual as disabled only if they are unable to work in any occupation. This definition is more restrictive and would exclude many individuals who are unable to work in their current occupation due to a disability.

Understanding the definition of disability is essential when considering disability insurance, as it determines the circumstances under which the policy will provide financial protection.

Choose an elimination period that suits your financial situation

When choosing an elimination period for your disability insurance, it's important to consider your financial situation. This period, also known as the “waiting” or “qualifying” period, refers to the time between the onset of your disability and when you start receiving benefits. Typically, this period ranges from 30 days to two years, and you need to be able to cover any expenses arising during this time. Here are some factors to consider when choosing an elimination period that suits your financial situation:

• Budget and premium payments: Evaluate your budget to determine what premium payments you can afford. Longer elimination periods result in lower premiums, but you'll have to wait longer for benefits. Shorter elimination periods may offer greater peace of mind but come with higher premiums. Consider if paying a higher premium for potentially decades is worth the extra months of benefits.
• Dependents: If you have multiple dependents, a shorter elimination period may be preferable to help cover increased expenses in the event of a disability. Fewer dependents may allow you to choose a longer elimination period to save on premiums.
• Savings and emergency funds: Assess your savings and emergency funds. A well-funded emergency fund can give you the flexibility to opt for a longer elimination period and lower premiums. If your savings are limited, a shorter elimination period, despite higher premiums, may be more prudent to ensure financial stability during a disability.
• Other sources of income: Consider any other sources of income, such as a working partner or short-term disability insurance that will pay out immediately. If you have alternative sources of income, you may be able to choose a longer elimination period.
• Days of coverage: Calculate how many days of coverage you'll need. If you have enough savings to cover a certain number of days, you can opt for a shorter elimination period. Conversely, if you can afford to wait longer for benefits, a longer elimination period may be more suitable.

Remember, the elimination period you choose will directly impact your premiums. A longer elimination period reduces the likelihood of filing a claim soon after becoming disabled, lowering the insurer's risk and your premium rates. On the other hand, a shorter elimination period increases the probability of filing a claim earlier, making you a higher-risk policyholder and resulting in higher premiums. Carefully consider your financial situation and seek guidance from a licensed insurance expert if needed to make an informed decision.

Frequently asked questions