Many boomers are reluctant to pay for the disability insurance they need to protect their current income and their retirement income.
“They certainly haven’t aged out of the market,” says Matthew Gottfried, director of individual disability income at Berkshire Life Insurance Company of America, Pittsfield, Mass.
But older boomers, especially, tend to gamble that their luck will last until they can collect Social Security and retirement benefits.
“I don’t think that’s a wise strategy,” Gottfried says. “There’s too much at risk.”
Researchers at Berkshire, a unit of Guardian Life Insurance Company of America, New York, have published charts illustrating boomer disability resistance in a summary of results from a survey of 1,072 U.S. adults ages 18 and older.
Only 56% of boomers ages 45 to 54 and only 56% of adults ages 55 to 64 said they are willing to pay for disability coverage, compared with more than 75% of adults ages 18 to 44, the Guardian researchers report.
Boomers are more likely than younger workers to believe that they have enough savings set aside to cope with loss of income for at least a few months.
The share of participants who said they could cope with a disability lasting a year or longer was 18% for the 45-54 age group and 27% for the 55-64 age group.
The flip side is that even in the relatively asset-rich 55-64 age group, only 32% of survey participants said they have enough savings to cover 3 months of living expenses.
Some boomers may be counting on access to Social Security disability payments and generous pension plans and retirement savings plans to help them cope with lengthy disabilities.
But many affluent boomers still have home mortgages, college-age children, sailboats and golfing habits to support, and the sheer number of boomers and members of earlier generations who continue to work for pay continues to grow rapidly.
In third quarter of 2006, for example, the number of U.S. employees in the 45-54 age category was about 34 million, up 33% from the total for the third quarter of 1996, according to the federal Bureau of Labor Statistics.
The number of employees increased 65%, to 19.5 million, for the 54-65 category, and 44%, to 5.3 million, for the 65-and-over category.
Meanwhile, the Guardian survey shows there is a significant gap between boomer interest in disability insurance and boomer purchases of disability insurance.
In the 45-54 age group, for example, only 47% of the participants said they use payroll deductions to pay for coverage.
In the 55-64 age group, only 28% of the participants have employers deduct disability insurance contributions.
Older workers often have to pay more than younger workers for disability coverage, particularly for voluntary supplemental coverage, but they also have a greater chance of using the coverage.
Berkshire has been trying to persuade workers to buy extra disability insurance coverage to protect an asset that should be close to the hearts of affluent boomers: retirement plan assets.
The retirement income protection program is relatively new, and Berkshire is still waiting to see what the actual claims will look like, Gottfried says.
In theory, the program should be a good way for workers to protect their anticipated retirement income without encouraging pre-retirees to leave the workforce, Gottfried says.
But the typical age of retirement income disability protection is only 37, which is not much different from the typical age of ordinary disability insurance purchasers, Gottfried says.
What can producers and insurers do to increase the percentage of boomer workers who pay for disability insurance?
Disability insurance experts interviewed came up with a number of ideas.
1. Update the products.
Some experts suggest that producers, insurers and actuaries should design narrower, more rigorously underwritten income-protection products suitable for healthy boomers who hope to continue working until they are in their 70s or even 80s.
Today, the federal Age Discrimination in Employment Act of 1978 lets employer-sponsored group disability plans limit benefits duration periods for employees ages 62 to 70.
A typical long-term disability plan might pay benefits to age 65–or 20 years–for a 45-year-old boomer who becomes disabled due to a back injury.
A 62-year-old worker in the same plan who suffers from the same kind of injury might qualify to collect benefits for 3.5 years, until age 65.5.
A 65-year-old plan participant could collect benefits for 2 years, until age 67, and a 69-year-old participant could collect benefits just 1 year, until age 70.
For insurers, the advantage to the current underwriting rules is that they help to hold down claims costs. But the rules may push away older boomers who are willing and able to pay for disability insurance and may still be on the job many years from now.
2. Help boomers conduct regular reviews of their disability insurance coverage.
The researchers who conducted the Berkshire disability survey note that 75% of the participants said they review their automobile insurance policies at least once a year, but only 54% said they review their disability insurance that often.
In addition, perhaps because of many financial professionals’ lack of familiarity with disability insurance, a 2002 study published by LIMRA International, Windsor, Conn., found that affluent individuals who prepared their own formal financial plans were about 25% more likely to end up with disability insurance than affluent individuals who turned to professional planners.
3. Educate boomers about the true cost of disability insurance.
Although many boomers say they are unwilling to pay for income protection, that may be partly because about half of them think disability insurance would cost 5% or more of their income, and more than a quarter think disability insurance would eat up 10% or more of their income, according to the Berkshire survey data.
In the real world, the typical cost is closer to 2% of the insured’s income, Berkshire researchers estimate.