In his long-running radio program, “A Prairie Home Companion,” host Garrison Keillor reports events from the fictional community of Lake Wobegon, Minnesota, a place where “all the women are strong, all the men are good looking, and all the children are above average.”
Keillor’s remark about the human tendency to overestimate our achievements and capabilities in relation to others isn’t just a bit of dry humor; there is plenty of research to back it up. In fact, the “Lake Wobegon effect,” where all or nearly all of a group claim to be above average, has been documented in studies of drivers, executives, entertainers, college students, even parents. Some of our perceived superiority is probably a reflection of a healthy self-esteem–we like ourselves, and what we do. But there are times when the Lake Wobegon effect indicates a startling disconnect from reality.
A 2010 survey commissioned by the Council for Disability Awareness asked individuals an interesting pair of “Lake Wobegon” questions. The first asked them to assess their risk of becoming disabled during their working lifetime. The second asked them to assess the risk of others becoming disabled. The results were quite interesting, both in terms of what people perceived about themselves and in relation to the realities of disability.
In general, respondents believed other people (i.e., “average” Americans) were more likely to experience a disability than they were. As the survey put it, a common response was, “It’s likely to happen, but not to me.” This is the Lake Wobegon effect, and it’s not surprising. But another finding is quite startling. Almost two-thirds of those surveyed rated the odds of becoming disabled for three months or more at 2% or less (those who selected either “1 in 100” or “1 in 50”). Yet private studies and government statistics indicate the “actual chances that an employee entering the workforce will experience a long-term disability prior to retirement” is 1 in 3. This represents a huge gap between perception and reality. What’s going on?
It appears the general public has a limited or misinformed perspective on what disability looks like, and how or when it occurs. Many associate an incident of disability with an accident, such as a car wreck or a workplace injury. Yet the CDA’s 2012 review of claims found illnesses, “including muscle and back problems, cancer, mental disorders like anxiety and depression, and heart disease,” comprised 90% of all disabilities. That seems like a pretty wide gap between perception and reality.
Other portions of the CDA’s survey support the conclusion that most people are ignorant regarding the true nature of disability. For example, the study found, “Those who knew someone who had been disabled were much more likely to think there was a higher chance they’d become disabled.” Unless they have some personal experience with disability, most people don’t have a clue about what it looks like.
To reinforce the realities of disability, an insurance brokerage firm in August 2013 released a brief description of select individuals who secured individual disability income (DI) insurance through the company and were now disabled and receiving benefits. The list is not a comprehensive report, but the information reinforces both the prevalence of illness as a principal cause of disability, and the fact that it can occur any time, even when one is younger.
NOTE: It is important to note that every person on the list was healthy enough to obtain disability insurance, which would mean there were no red flags indicating any of these individuals were likely to succumb to these conditions. Yet, in a very short time, they encountered debilitating conditions.
Statistics clearly indicate the possibility of disability is high enough and the potential financial hardship great enough to require your attention. How will you respond to the threat of disability?
There is a broad spectrum of possible solutions, with one end focused on minimizing costs and the other on maximizing income protection. Participation in disability insurance plans provided by Social Security is mandatory, eligibility is narrowly defined, and the benefit payments are often a small fraction of one’s pre-disability income. Workers’ compensation plans are exclusively for disabilities that occur in the workplace. Group insurance, typically offered by employers, provides greater benefits, usually under less stringent definitions of disability but is not “portable”–if you leave your employer, you can’t take the group disability insurance coverage with you. Personally owned disability insurance is portable, and allows the individual to customize his/her disability package and maximize income protection.
The type of disability protection you choose is largely a reflection of how much you value your ability to generate an income, and how strongly you want to preserve that ability. For some people, disability, if it occurs, will be a life-ending event in terms of financial aspirations. Financial dreams are done, and one’s future orientation will be preoccupied with survival. Others want the resources to treat disability as a momentary setback, from which they can recover or adapt. They want to preserve their financial dreams and, as much as possible, protect not only today’s income, but their future earning potential as well. The cost of disability insurance certainly factors into the decision, but even so, the response ultimately hinges on one’s perception of his/her financial value.
When you comprehend the true nature of disability, both the likelihood of occurrence and what it looks like, it’s a hard topic to ignore. The hard work and sacrifice you have invested in building your income is worth protecting. Even if you have already secured some disability benefits, most individuals (particularly high-income professionals) would benefit from a review with a disability insurance expert.
By the way…because they are all above average, everyone in Lake Wobegon would have a maximized disability protection program (even though they are, in their estimation, the least likely to be disabled).
Elozor Preil, RICP®, CLTC is Managing Director at Wealth Advisory Group and Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). He can be reached at [email protected]. See www.wagroupllc.com/epreil for full disclosures and disclaimers. Guardian, its subsidiaries, agents, or employees do not give tax or legal advice. You should consult your tax or legal advisor regarding your individual situation.
By Elozor M. Preil
