Consumer Understanding of Disability Insurance
Confused and Uninsured: Consumer Understanding of Disability Insurance Insurance Research – Employee Benefits Project Team: Yuliya Babushkina Senior Analyst [email protected]
Anita Potter Assistant Vice President [email protected]
Neal Shah Assistant Analyst [email protected]
Karen Terry Assistant Managing Director [email protected]
About the Study In July 2013, LIMRA conducted an online survey of 1,636 U.S. consumers to gauge their understanding and basic knowledge of disability insurance, government programs, and the risk of being disabled. We asked consumers a series of true/false and multiple-choice questions on topics selected to measure how well consumers understand both disability insurance and the financial risk of disability. Questions covered how disability plans work, common benefit features and associated costs, the risk of becoming disabled, and government programs such as workers compensation and Social Security Disability. The sample was weighted to be representative of the general population. For the purposes of this report, survey participants were categorized into separate knowledge levels determined by the number of true/false questions they answered correctly.
•
A “low” level of disability insurance knowledge represents 0-3 questions answered correctly.
•
A “medium” level of disability insurance knowledge represents 4-6 questions answered correctly.
•
A “high” level of disability insurance knowledge represents 7-10 questions answered correctly. 2
Key Findings and Insights Very few Americans have disability insurance and, consequently, a very small percentage truly understand this product. Only 1 in 25 consumers demonstrate a high level of knowledge about disability insurance policies. On average, U.S. consumers answered just over 3 out of 10 questions correctly.
There is practically no difference between the scores of those respondents who have experienced disability themselves or through their family members and those respondents who have no experience with disability.
Those with the lowest levels of knowledge — consumers with less education,
lower incomes, and less than full-time jobs — are more likely to have experience with disability.
3
Disability Insurance Knowledge Almost 75 percent of consumers answered fewer than 5 out of 10 questions correctly. Moreover, only 1 in 25 consumers have a high level of knowledge about disability insurance.
Generally speaking, consumers are most knowledgeable about what worker’s compensation covers and how much of your salary disability insurance replaces. Conversely, there is a tremendous lack of knowledge when it comes to understanding leading causes of disability, the probability of becoming disabled, the length of a disability, and how much disability insurance costs.
Percent Answering Number of Questions Correctly 3.1*
? 10% Not at all knowledgeable
0 *Average Score
13%
15%
19%
18%
14%
7%
3%
1%
0%
0%
1
2
3
4
5
6
7
8
9
10
Low
Medium
Very knowledgeable
High 4
Ownership and Experience Ownership of disability insurance
has some impact on knowledge. Those who don’t have any coverage are more likely to have a low level of knowledge. Those with insurance, especially employer-based coverage, are more likely to have at least a mid-level understanding of disability insurance and the chance of becoming disabled.
Experience with disability, either personally or through a friend or relative, is not a predictor for a higher level of knowledge. As the majority don’t have coverage, those with experience probably weren’t insured at the time. Those with experience also tend to have the demographic characteristics associated with a lower level of knowledge, lower income, less education, and lack of employment.
Percentage of Consumers With a “High,” “Moderate” or “Low” Level of Knowledge Average DIQ
3.9
3.4
2.8
High
8%
4%
3%
Moderate
51%
47%
32%
41%
49%
Low
Employer-based
65% Individual
Type of Disability Coverage
Uninsured
3.2
3.1
4%
4%
41%
38%
58%
55% Experience
No Experience
Experience With Disability 5
Age and Level of Knowledge With age comes wisdom, and perhaps more experience with disability. Consumers under age 40 have a lower disability IQ. Knowledge increases in the older, working age groups, especially among pre-retirees aged 55 to 64. After age 65 knowledge declines, as the need to know how disability insurance works is less important.
Older consumers are more likely to understand concepts related to claims: how frequently benefits may be paid, Social Security Disability offsets, and whether workers compensation covers off-the-job injuries.
Percentage of Consumers With a “High,” “Moderate” or “Low” Level of Knowledge (Based on Age) Average DIQ High
3.4
3.3
3.0
2.9
3.2
4%
4%
4%
6%
0%
Moderate
35%
35%
44%
40%
36%
Low
61%
61%
52%
54%
64%
Under 25
25 to 40 years
41 to 54 years
55 to 64 years
65 and older
6
Other Knowledge Predictors Beyond ownership, age and income, education and employment are predictors of knowledge. Consumers that express higher levels of disability insurance knowledge tend to be: More affluent Better educated Employed While no group had more than 10% scoring a high IQ, consumers who possessed the most knowledge about disability insurance are those that have obtained coverage through an employer (8 percent), make $150k or more (7 percent), are employed fulltime (5 percent), and graduated college with a Bachelor’s degree (6 percent).
Percentage of Consumers With a “High,” “Moderate” or “Low” Level of Knowledge 2.7
Average DIQ High
3.4
2.8
3.0
3.3
3.4
3%
5%
2%
5%
3%
5%
Moderate
31%
43%
34%
41%
36%
43%
Low
66%
52%
64%
54%
60%
51%
Not Employed
Employed
Employment Status
High School or less
Some College or More
Education
Less than $75k
$75k or More
HHD Income 7
Disability Concerns Consumers are concerned about the risk of disability
6 in 10 people who have experience with a disability are concerned with disability risk.
Disabled retirees understand that a disability can destroy the best-laid retirement plans. “…I’m only 49 and disabled. I was forced into an early retirement so I guess just make sure to plan ahead ’cause you never know what might happen at any given time in life.” — female, high school graduate, < $10,000 in assets.
--------------------------------
Only running out of retirement savings is more of a concern than the impact of a disability.
Percentage of Consumers Very or Extremely Concerned Having enough for retirement
56%
Able to support myself if disabled
50%
Paying for medical expenses
48%
Paying off debt
48%
Paying my monthly bills
44%
Impact on family if I die
40%
Losing my job
32%
Paying for my child's education
31%
8
Implications Disability insurance is a complex product and confusing at times even to those who sell it. It isn’t surprising that most consumers have little or no understanding of the product. More concerning is the lack of understanding by those that own disability insurance or have experience with either themselves or a family member being disabled. Those who own it don’t understand it and even those who needed it still don’t understand how it works. This lack of knowledge impacts disability sales. People who shop for disability insurance but don’t buy cite indecision and lack of knowledge more even than cost as they reason they didn’t buy.* (Consumers in this study underestimate the cost of individual policies and overestimate the cost of disability through an employer.) The good news is that many consumers understand that this is a risk they face and don’t understand. The most common response for most questions was “I don’t know” and the financial impact of being disabled is the second-highest concern for consumers, after saving enough for retirement. This is especially true for those with personal experience with disability. The challenge will be to reach those most at risk, and least knowledgeable, which tend to be people who fall in harder-to-reach demographic groups.
* Disability Insurance Why Not? LIMRA, 2011, page 20. 9
Questions Asked Correct answers are indicated in red: What is the chance of a worker age 20 or older becoming disabled before they retire? * a. 10% (14%) b. 20% (18%) c. 25% (19%) d. 33% (13%) e. Don’t know (36%) What is the leading cause of disability?* a. Serious accident (25%) b. Serious illness, such as cancer, stroke, heart disease (21%) c. Depression/anxiety (4%) d. Back/joint pain (17%) e. Lifestyle choices/substance abuse (5%) f. Pregnancy (2%) g. Don’t know (26%) How long does the average long-term disability last?^ a. 1 year (13%) b. 3 years (14%) c. 5 years (8%) d. More than 5 years (18%) e. Don’t know (47%) *CDA
2013 Advisor Disability Awareness Study, Council for Disability Awareness, 2013. Disability Fact Book 7th Edition, Gen Re, 2013.
^GenRe
10
Questions Asked Correct answers are indicated in red: On average, how soon after someone becomes disabled will a long-term disability policy start paying benefits?^ a. b. c. d. e.
1-3 months (20%) 3-6 months (23%) 6-9 months (12%) 9-12 months (7%) Don’t know (38%)
Workers compensation covers injuries that occur on and off the job. a. True (18%) b. False (66%) c. Don’t know (16%) Your disability payment may be reduced if you qualify for Social Security Disability payments. a. True (44%) b. False (11%) c. Don’t know (45%) Disability benefits can be paid weekly, monthly, or as a lump sum. a. True (37%) b. False (21%) c. Don’t know (42%)
^GenRe Disability Fact Book 7th Edition, Gen Re, 2013. 11
Questions Asked Correct answers are indicated in red: Disability benefits are not taxable. a. True (28%) b. False (33%) c. Don’t know (39%) Disability insurance replaces 100% of your salary, including bonuses. a. True (8%) b. False (67%) c. Don’t know (25%) (Split sample with 50% getting Part 1 and 50% getting Part 2) 1.
Approximately, how much does an average disability policy/benefit obtained or purchased through work cost per year, regardless if you or your employer pays the premium? a. Less than $200 per year (11%) b. $200-400 per year (14%) c. $400-600 per year (11%) d. $800-1,000 per year (10%) e. Don’t know (54%)
2.
Approximately, how much does an average disability policy that you purchase yourself outside of work cost per year? a. Less than $400 per year (12%) b. $400-600 per year (13%) c. $800-1,000 per year (10%) d. $1,500-2,000 per year (8%) e. Don’t know (57%)
12
HARTFORD
ATLANTA
TORONTO
LONDON
KUALA LUMPUR
SHANGHAI
TAIPEI
HONG KONG
©2013, LL Global, Inc.SM 300 Day Hill Road, Windsor, CT 06095, U.S.A. Phone: 860-688-3358 Fax: 860-298-9555 Web: www.limra.com
MEXICO CITY
Anita Potter Assistant Vice President [email protected]
Neal Shah Assistant Analyst [email protected]
Karen Terry Assistant Managing Director [email protected]
About the Study In July 2013, LIMRA conducted an online survey of 1,636 U.S. consumers to gauge their understanding and basic knowledge of disability insurance, government programs, and the risk of being disabled. We asked consumers a series of true/false and multiple-choice questions on topics selected to measure how well consumers understand both disability insurance and the financial risk of disability. Questions covered how disability plans work, common benefit features and associated costs, the risk of becoming disabled, and government programs such as workers compensation and Social Security Disability. The sample was weighted to be representative of the general population. For the purposes of this report, survey participants were categorized into separate knowledge levels determined by the number of true/false questions they answered correctly.
•
A “low” level of disability insurance knowledge represents 0-3 questions answered correctly.
•
A “medium” level of disability insurance knowledge represents 4-6 questions answered correctly.
•
A “high” level of disability insurance knowledge represents 7-10 questions answered correctly. 2
Key Findings and Insights Very few Americans have disability insurance and, consequently, a very small percentage truly understand this product. Only 1 in 25 consumers demonstrate a high level of knowledge about disability insurance policies. On average, U.S. consumers answered just over 3 out of 10 questions correctly.
There is practically no difference between the scores of those respondents who have experienced disability themselves or through their family members and those respondents who have no experience with disability.
Those with the lowest levels of knowledge — consumers with less education,
lower incomes, and less than full-time jobs — are more likely to have experience with disability.
3
Disability Insurance Knowledge Almost 75 percent of consumers answered fewer than 5 out of 10 questions correctly. Moreover, only 1 in 25 consumers have a high level of knowledge about disability insurance.
Generally speaking, consumers are most knowledgeable about what worker’s compensation covers and how much of your salary disability insurance replaces. Conversely, there is a tremendous lack of knowledge when it comes to understanding leading causes of disability, the probability of becoming disabled, the length of a disability, and how much disability insurance costs.
Percent Answering Number of Questions Correctly 3.1*
? 10% Not at all knowledgeable
0 *Average Score
13%
15%
19%
18%
14%
7%
3%
1%
0%
0%
1
2
3
4
5
6
7
8
9
10
Low
Medium
Very knowledgeable
High 4
Ownership and Experience Ownership of disability insurance
has some impact on knowledge. Those who don’t have any coverage are more likely to have a low level of knowledge. Those with insurance, especially employer-based coverage, are more likely to have at least a mid-level understanding of disability insurance and the chance of becoming disabled.
Experience with disability, either personally or through a friend or relative, is not a predictor for a higher level of knowledge. As the majority don’t have coverage, those with experience probably weren’t insured at the time. Those with experience also tend to have the demographic characteristics associated with a lower level of knowledge, lower income, less education, and lack of employment.
Percentage of Consumers With a “High,” “Moderate” or “Low” Level of Knowledge Average DIQ
3.9
3.4
2.8
High
8%
4%
3%
Moderate
51%
47%
32%
41%
49%
Low
Employer-based
65% Individual
Type of Disability Coverage
Uninsured
3.2
3.1
4%
4%
41%
38%
58%
55% Experience
No Experience
Experience With Disability 5
Age and Level of Knowledge With age comes wisdom, and perhaps more experience with disability. Consumers under age 40 have a lower disability IQ. Knowledge increases in the older, working age groups, especially among pre-retirees aged 55 to 64. After age 65 knowledge declines, as the need to know how disability insurance works is less important.
Older consumers are more likely to understand concepts related to claims: how frequently benefits may be paid, Social Security Disability offsets, and whether workers compensation covers off-the-job injuries.
Percentage of Consumers With a “High,” “Moderate” or “Low” Level of Knowledge (Based on Age) Average DIQ High
3.4
3.3
3.0
2.9
3.2
4%
4%
4%
6%
0%
Moderate
35%
35%
44%
40%
36%
Low
61%
61%
52%
54%
64%
Under 25
25 to 40 years
41 to 54 years
55 to 64 years
65 and older
6
Other Knowledge Predictors Beyond ownership, age and income, education and employment are predictors of knowledge. Consumers that express higher levels of disability insurance knowledge tend to be: More affluent Better educated Employed While no group had more than 10% scoring a high IQ, consumers who possessed the most knowledge about disability insurance are those that have obtained coverage through an employer (8 percent), make $150k or more (7 percent), are employed fulltime (5 percent), and graduated college with a Bachelor’s degree (6 percent).
Percentage of Consumers With a “High,” “Moderate” or “Low” Level of Knowledge 2.7
Average DIQ High
3.4
2.8
3.0
3.3
3.4
3%
5%
2%
5%
3%
5%
Moderate
31%
43%
34%
41%
36%
43%
Low
66%
52%
64%
54%
60%
51%
Not Employed
Employed
Employment Status
High School or less
Some College or More
Education
Less than $75k
$75k or More
HHD Income 7
Disability Concerns Consumers are concerned about the risk of disability
6 in 10 people who have experience with a disability are concerned with disability risk.
Disabled retirees understand that a disability can destroy the best-laid retirement plans. “…I’m only 49 and disabled. I was forced into an early retirement so I guess just make sure to plan ahead ’cause you never know what might happen at any given time in life.” — female, high school graduate, < $10,000 in assets.
--------------------------------
Only running out of retirement savings is more of a concern than the impact of a disability.
Percentage of Consumers Very or Extremely Concerned Having enough for retirement
56%
Able to support myself if disabled
50%
Paying for medical expenses
48%
Paying off debt
48%
Paying my monthly bills
44%
Impact on family if I die
40%
Losing my job
32%
Paying for my child's education
31%
8
Implications Disability insurance is a complex product and confusing at times even to those who sell it. It isn’t surprising that most consumers have little or no understanding of the product. More concerning is the lack of understanding by those that own disability insurance or have experience with either themselves or a family member being disabled. Those who own it don’t understand it and even those who needed it still don’t understand how it works. This lack of knowledge impacts disability sales. People who shop for disability insurance but don’t buy cite indecision and lack of knowledge more even than cost as they reason they didn’t buy.* (Consumers in this study underestimate the cost of individual policies and overestimate the cost of disability through an employer.) The good news is that many consumers understand that this is a risk they face and don’t understand. The most common response for most questions was “I don’t know” and the financial impact of being disabled is the second-highest concern for consumers, after saving enough for retirement. This is especially true for those with personal experience with disability. The challenge will be to reach those most at risk, and least knowledgeable, which tend to be people who fall in harder-to-reach demographic groups.
* Disability Insurance Why Not? LIMRA, 2011, page 20. 9
Questions Asked Correct answers are indicated in red: What is the chance of a worker age 20 or older becoming disabled before they retire? * a. 10% (14%) b. 20% (18%) c. 25% (19%) d. 33% (13%) e. Don’t know (36%) What is the leading cause of disability?* a. Serious accident (25%) b. Serious illness, such as cancer, stroke, heart disease (21%) c. Depression/anxiety (4%) d. Back/joint pain (17%) e. Lifestyle choices/substance abuse (5%) f. Pregnancy (2%) g. Don’t know (26%) How long does the average long-term disability last?^ a. 1 year (13%) b. 3 years (14%) c. 5 years (8%) d. More than 5 years (18%) e. Don’t know (47%) *CDA
2013 Advisor Disability Awareness Study, Council for Disability Awareness, 2013. Disability Fact Book 7th Edition, Gen Re, 2013.
^GenRe
10
Questions Asked Correct answers are indicated in red: On average, how soon after someone becomes disabled will a long-term disability policy start paying benefits?^ a. b. c. d. e.
1-3 months (20%) 3-6 months (23%) 6-9 months (12%) 9-12 months (7%) Don’t know (38%)
Workers compensation covers injuries that occur on and off the job. a. True (18%) b. False (66%) c. Don’t know (16%) Your disability payment may be reduced if you qualify for Social Security Disability payments. a. True (44%) b. False (11%) c. Don’t know (45%) Disability benefits can be paid weekly, monthly, or as a lump sum. a. True (37%) b. False (21%) c. Don’t know (42%)
^GenRe Disability Fact Book 7th Edition, Gen Re, 2013. 11
Questions Asked Correct answers are indicated in red: Disability benefits are not taxable. a. True (28%) b. False (33%) c. Don’t know (39%) Disability insurance replaces 100% of your salary, including bonuses. a. True (8%) b. False (67%) c. Don’t know (25%) (Split sample with 50% getting Part 1 and 50% getting Part 2) 1.
Approximately, how much does an average disability policy/benefit obtained or purchased through work cost per year, regardless if you or your employer pays the premium? a. Less than $200 per year (11%) b. $200-400 per year (14%) c. $400-600 per year (11%) d. $800-1,000 per year (10%) e. Don’t know (54%)
2.
Approximately, how much does an average disability policy that you purchase yourself outside of work cost per year? a. Less than $400 per year (12%) b. $400-600 per year (13%) c. $800-1,000 per year (10%) d. $1,500-2,000 per year (8%) e. Don’t know (57%)
12
HARTFORD
ATLANTA
TORONTO
LONDON
KUALA LUMPUR
SHANGHAI
TAIPEI
HONG KONG
©2013, LL Global, Inc.SM 300 Day Hill Road, Windsor, CT 06095, U.S.A. Phone: 860-688-3358 Fax: 860-298-9555 Web: www.limra.com
MEXICO CITY
