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Tag: disability

 

With all due respect to the people who have suffered losses in the recent spate of storms across the South and the sort of cool Mayhem commercials on TV, people have the wrong focus.

Everyone is concerned about their house burning down, yet becoming disabled and unable to work is several times more likely from an actuarial point of view. Yet everyone with a house buys home owners insurance.

Car insurance is mandatory in many states, and people will put collision coverage on a car valued at $20k. Yet for a late 20’s individual the probability of disability is roughly the same as having an accident that totals your car, and the value of that income stream that is lost will be several times as great as the replacement cost of the vehicle.

But fires and crashes are sexy in a train wreck gotta watch the accident way. Disability isn’t. Yet Disability Insurance is the single most overlooked component in a financial plan. Think of it this way: if you get hurt or injured and have no money coming in the door, your financial plan is useless because there are no finances TO plan.

 

According to multiple sources (such as The Commissioners Disability Tables), the average disability that goes to a claim lasts 2.5 years. Let’s do some math on this, using my degenerate gambler’s sense of probability and expected returns.

Assume that you are a young professional making $60k per year. So this is a $5k per month gross income, which many insurance companies will insure for disability purposes at 90%, or $4,500 of after tax income. 30 months of disability is thus $135,000 (assuming no indexing for inflation). So this is the average risk for a young professional.

Assuming that there is a one in four chance of being disabled, that means the expected value is $33,750. Now let’s see the cost of getting this coverage. Checking with some of my buddies that right disability insurance, we can assume about $600 a year for this coverage. Dividing the expected value ($33.75k) by the cost ($600/year), we get 56.25, which is the number of years it would take for the cost to exceed the expected value.

Fifty six years s obviously longer than the average working career. What does this tell us?

From a mathematical perspective, buying disability insurance is a good bet.

 

Every day we hear about the housing market, how new homes are not being built and that foreclosures have dropped X percent from their all time highs of a few years ago but are still above historical averages. Which still means that there are a LOT of houses being foreclosed on. Here’s some news though boys and girls: it is not all because of the big bad bankers selling loans that they shouldn’t have or companies laying off entire divisions (although Detroit due to economic concentration in one industry can blame the auto industry for their woes).

One fact that is getting lost in all the short term economic noise:homes have always been foreclosed on for a variety of reasons. And the number one (before the bankers messed it up) was disability.

Home ownership has long been part of the American Dream, but if you become disabled it can become a nightmare, because few Americans have protected themselves financially if they can’t work due to illness or injury. In 2007, before all the mortgage madness, almost HALF of all residential foreclosures were due to income disruption caused by disability. HALF!

I am not a big fan of throwing additional restrictions and requirements on people, but if I were a bank I would require anyone taking out a mortgage to have disability insurance, just to protect my loan. They require life insurance through PMI, why not DI?

 

I like Guinness. Anyone who has met me knows that that is a statement like “Mickey Mantle was a decent baseball player.” So what does this have to do with Disability Insurance Awareness Month (DIAM)? Trust me, there is a point to this that is actually relevant.

I also love to work out, especially long hard cardio based workouts, either running or martial arts. And the reward for doing the hour long, red line your engine and be ready to puke torture session workout is to have a couple of beers later. As my marathon coach (who also happens to have a PhD in biochemistry, so he knows what he is talking about), beer is just liquid bread, essentially carbs and water, so is actually good for endurance athletes.

I also give blood on a regular basis (and not just to the government through my taxes). I do this because there is demand for my blood type, and people have need that I can assist with. It’s also not that big of a deal to go and lie there for a half hour and think while you drip.

The problem is when you do all of these the same day. Having a six mile hard run in the morning, then giving blood, and having a few malted hops beverages in the evening without properly re-hydrating will wreck havoc on your body.

I woke up the next day feeling like I had gone ten rounds with Mike Tyson, in the Sahara. There was literally no part of me that was not in pain. My mouth was dry and I couldn’t do anything about it because my head spun like the kid in the Excorcist. Every time I took a drink of water it set off my stomach and it came back up (with some other stuff. Until there was no other stuff left. Then it was just dry heaving.), leaving me weak and in pain, almost ready to curl up by the toilet bowl. Every fiber of my being hurt, and I just wanted the pain to go away. We have all been here.

Chemotherapy feels like this every single day.

I have had friends and relatives go through chemo. The sickness, the weakness. Weight loss of thirty or even fifty pounds because of no appetite. The inability to focus, and depending on someone else to drive and take care of you because the side effects are so bad.

Chemo is a multi month hangover without the fun.

And that is why this is relevant to DIAM. In the past I had young people (who are invulnerable, as we all know) tell me that “I’ll just work through it if I get sick or hurt.” Until they saw a friend go through cancer and chemo. Until they saw the strongest and proudest people reduced to their knees from the side effects, unable to take care of themselves during their treatments let alone contribute economically. And not a single person whom I ever worked with as a financial adviser that saw someone go through chemotherapy ever resisted stepping up and getting disability insurance, because they have seen what it can do.

Cancer is serious stuff: I have lost loved ones to it just like practically everyone else. But I have learned the financial lessons from it. There is little we can do to prevent cancer, but much we can do to mitigate its effects financially. And buying Disability Insurance is the first and easiest step.

 

Since it’s Disability Insurance Awareness Month (DIAM), let’s explore some of the more interesting aspects of disability insurance. At least from a nerdy “I am actually a closet actuary” point of view. One thing about disability insurance that doesn’t get talked about enough is “Why do women pay more than guys?”

I have asked a bunch of insurance people about this in the past and over half were just like “duuuhhh, I dahnno.” And these are the guys that should understand it so that they can get it in their clients hands!

Without getting all uber nerdy (yes, I actually did consult some of my friends that are actuaries on this to get the real mathematically based answers), it is this simple why DI costs more for a woman than a man: because they get disabled more! I know, rocket science. But why?

One is the fact that they can get pregnant and I as a male actually can’t (no, I am not going to try and pull a Schwartzenegger). My wife was on hormone therapy for a while when we were trying to get pregnant, and it did mess up her system a bunch. Not enough to disable her, but in extreme cases that does happen. She was however on full bed rest for several months with our second kid, almost long enough for her disability to kick in. And post partum we had no issues but I know several other new mothers that have had problems, severe enough to keep them out of work for extended periods. Enough to trigger a disability claim. So that is a major reason.

Another is that guys are stupid. Yes, we are stupid enough to do stuff that could get us killed (“hey, watch this!”). We don’t become disabled from this stupidity all that often, but our stupidity and Superman complex carries over into everything else we do. Which includes believing we are invulnerable, and not going to the doctor until it is too late. So instead of becoming disabled like an intelligent female does since they go to the doctor, we men just drop dead. That is why life insurance costs more for us because we live roughly eight years less because of this.

There are other factors that can contribute to the difference in costs between male and female disability insurance, but they are minor in the grand scheme of things. So there you have it: the primer on non-sex neutral disability pricing.

Does this mean if you are a female you should just say “It’s too expensive, guess I won’t get it.” NO! The easiest way around this is to get with other people at your place of employment and purchase your individual disability from a company that offers a multi-life discount (such as Northwestern Mutual, MassMutual, or Guardian). By doing so you can get a discount that generally is large enough to cover the actuarial difference between the sexes, thus eliminating the penalty for actually taking care of yourself. Women are more likely to cooperate in this manner because, well, you’re women and do things together for the common good better than the testosterone fueled alpha males.

Americans are overtired, overworked, and overstressed.  I say this as I sit here writing before 5:00 in the morning because I have so much work to do, sucking down coffee like I own a plantation and need to consume the supply to keep prices up.

I found a scholarly article from the National Academies of Science Press that shows 50-70 MILLION Americans are sleep deprived.  That is a huge number, and a major productivity drag on the economy.  It can also lead to an array of personal health issues ranging from just being grumpy to mental break downs and heart issues.

Combine that with the fact that the average American is working longer hours to just financially survive, which leads to poorer diets (i.e. more “Heart Attack in a Sack” meals from fast food places), less time for physical activity, and less relaxation.

And even though they finally got Bin Laden, there is still an amazing amount of stress in our Society (especially if you have young kids and/or a business).    It is literally the perfect storm of negativity.

Luckily, we have not seen a spike in disability insurance claims like many of the experts (and actuaries in insurance home offices) feared, but we have seen somewhat of an increase.  And it will probably get worse in the future because of the interaction of these three O’s (overworked, overtired, overstressed) that will slowly be alleviated over a few years but are becoming the new normal for Society.  So what do we do about it?

2 things.  First, try to reduce the effects of them before you snap at your wife like I did last night (I apologize again Ambre).  Take a five minute walk a couple times a day to clear your head.  Squeeze in a few minutes of excercise in the morning to wake up instead of having 60 ounces of coffee.  Try to not let work overtake your life (very difficult if you love what you do).  Literally stop to smell the roses or watch a sunset, because a few minutes of calm will counter much of the crap in the world.

Secondly, hedge your bets.  Buy disability insurance to protect against the economic disruption that could happen if the 3 O’s overtake you.  But not just any DI; get non-cancellable and guaranteed renewable so that your prices are locked in.  When the actuaries tell the finance guys in the insurance companies that they need to raise prices, you will be protected because your contract will have guaranteed premiums.  And make sure that you get a policy with favorable provisions for stress related issues.  Many policies say you need to be in a mental facility to recieve benefits, and this is NOT what you want.  If you are going to get coverage, don’t get something that is filled with holes!

The overworked, overtired, and overstressed American worker has always existed, but has reached epidemic proportions that will not disappear.  There is no shot (coffee, liquor, or medical) to make it instantly go away.  So do what you can to alleviate the symptoms, and CYA with a good DI policy.

LIMRA, the Life Insurance Marketing and Reseach Association, has released data about income and income protection that is pretty scary.  70% of US households depend on dual incomes.  Yet only 25% of households have disability insurance.

This is scary.  Before the housing market fiasco of the past few years (fueled by economic downturns and too great financial committments to houses), the number one reason for house foreclosure was disability.  Something that can be almost completely hedged from a risk management point of view.  Yet it is ignored three quarters of the time.  Not a good thing unless you are a foreclosure specialist.

Think about this for a moment.  If you save 10% of your income (Americans average only 6% savings, so you have to be over 50% MORE disciplined than average), after 10 years you would save the equivalent of one year of salary.  Pretty cool.

If you were then disabled and did not have disability insurance, you would have to draw down on those reserves.  A single year of disability would wipe out a decade of hard work.

Or you can buy disability insurance for ~1-2% of your salary and get to keep the fruits of that decade of savings.  You don’t chose to become disable, but you DO chose to save, and you should chose to protect those savings.

 

Today, I am not going to try to scare you with details about radiation or noise pollution or other environmental factors endangering your health. Instead I am going to talk about a major health factor that is almost directly under our control: our weight. Bigger waistlines DIRECTLY translate into increased probability of disability and drive up health insurance costs across the board.

Now I like to eat. I run marathons so that I can eat more with a semi-clear conscious (rationalization: if I run ten miles in a day I am allowed to eat or drink anything I want that day), and I certainly enjoy a Guinness or three. But I do not eat nor drink like I did at 23 when I was single, had no kids, and worked out 120+ minutes a day.

Let’s first focus on the average size of an American. According to the CDC, the average American male adult is roughly 18% heavier than their peers from 50 years ago. The average female has added about 20% to their mass, while both groups have added only about an inch in height. So we are slightly taller but much heavier than we were two generations ago, something that doesn’t surprise anyone who has seen “Supersize Me” or gone to a county fair. And our kids are reflecting this trend (too much TV, video games, and Happy Meals): the average 10 year old is 20% heavier than they used to be when Mom kicked them outside to actually play baseball with their friends.

Let’s just take a look at how this increase in mass affects individuals. Societal effects like Medicare and Medicaid and productivity decreases are just plain huge, almost too big to comprehend. So what does extra weight mean to you and your body?

  1. Extra weight creates additional stress on the body to carry it. It can cause back, knee, and hip problems via structural damage. One stat I’ve seen says 1lb of weight = 3lbs of stress on the knee, and twice that for the hip. So there is over an extra hundred pounds of stress on the average person’s joints today. No wonder hip and knee replacements are as common as political flip-flopping.
  2. Being 20% overweight “significantly” increases your risk of heart disease according to the CDC. Ironically, the average American is 20% or so overweight, meaning the ½ of Americans have significantly greater risk of heart problems than fifty years ago. Leading cause of death for females is heart disease, and it is right up there for guys.
  3. If you are overweight you are more likely to have sleep apnea, which has a plethora of not good side effects.
  4. Extra mass messes up your body chemistry in a myriad of ways, from hormone levels to blood sugar to triglycerides. So you have diabetes, and reduced immunity, and lower oxygen carrying capacity, and sexual dysfunction. None on the list of good things.

Now, do we just say “Fudge it!” and sit on the couch with a half gallon of ice cream and a spoon? Better not. There are little ways that you can slowly shed those extra pounds without going on The Biggest Loser or eating only rabbit food for the next three months.

  1. Park away from where you need to go. Parking 100 feet away from the door instead of right next to it will cause you to use up an extra five calories or so. Not big, but three times a day, every day is about a pound and a half for a year.
  2. Take the stairs. A few extra flights of stairs every day at the office can be a couple of pounds a year.
  3. Eat more veggies. They have low calorie density, so will fill you up a bit more without adding to the waistline. Americans don’t eat enough of these anyway. Can be a half a pound of fat loss a month without turning you into an herbivore.
  4. Change your milk. Instead of cream in your coffee use milk. Instead of whole milk use 2%. Making these small changes can be over 100 calories a day, or a pound a month.

These are very easy substitutions or additions that will not interfere with your hectic life. They are almost small enough to be unnoticeable. Yet the compounded effect is probably two pounds a month, enough to improve your mood and productivity. Or over a year a drastic reduction in the health effects that can and will disable you at some point.

We can not control the world around us for the most part. But we can control what comes out of our mouth, and what goes in it. And those can make a world of difference.

So yesterday I talked about the ubiquity of man made radiation from electronic devices and how it is going to probably have negative long range health effects.  Today I am going to throw some gas on that fire!

One of the biggest health threats that we have is even more wide reaching and insidious: noise pollution.  Think about it for a moment: if you live in “The City That Never Sleeps”, do you ever really get to?  The constant noise from vehicles and other machines, from people, from the buildings (heating, cooling, refridgerators, general “white noise”) accumulate to create a background noise level that is significantly higher than what we used to have, and is unescapable in the urban areas.  How does this effect us?

One known side effect of the noise pollution is the damage to the inner ear, often from extremely loud noises (think Pete Townsend of the Who or James Hetfield from Metallica).  This tinnitus can cause problems ranging from headaches to dizziness to nausea.  So your rock n roll lifestyle can lead essentially to a constant hangover!

Another is sleep disruption.  Not being able to properly cycle in sleep has been shown to have negative psychological effects, and to compound problems with ADD and ADHD.  How much of our society is now on mind altering drugs?  How many less could it be if people actually got some peace and quiet?

This sleep interruption also means that the body can not physically repair itself the way it should.  This makes you more susceptable to diseases from the flu to Black Death (ok, I just wanted to use the word “Bubonic Plague”).  It also makes you react worse to allergies, and lengthens recovery time to illnesses and injuries of all forms while generally weakening the body.  Not on the list of good things.  Makes all forms of disability due to illness worse.

And even in the hinterlands there is the issue of noise pollution.  Highways may have sound barriers in some areas, but they still produce noise.  Trains rumble down the tracks.  Stupid refrigerator turns on in the middle of the night and wakes me up.  When I was a kid (in addition to learning to parallel park with a cow because we didn’t have sidewalks nor people parking on side of road), I would go to sleep listening to the crickets.  Now the only one I hear is Jimminy when my kids are watching Disney way too loud.

So what do we do?  Sound proof our houses and try to live in isolation chambers (a cross between Michal Jackson and Affleck’s Daredevil?  Scary thought!)?  Move to monasteries on the top of mountains and take a vow of silence?  Not very likely.  But we can take the time to try to reduce the noise levels internal to our homes, and our heads.  Turn the iPod down from top volume (only Spinal Tap should be on 11).  Unplug electronics to reduce the white noise (and electromagnetic radiation per yesterday’s post.  Also reduces energy consumption, thus saving money too.), and take the time to take some deep breathes as it will quiet your mind.  Unfortunately the fact that there are 7 BILLION people and the associated infrastructure makes this one difficult to counteract, but you can still takes some little steps to not compound the problem.