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Study finds many Americans financially unprepared for a disability

By Maryalene LaPonsie on May 30th, 2012

Many Americans are misinformed about the most likely cause of disability, and many overlook the importance of disability insurance, according to a study by the State Farm Center for Women and Financial Services at The American College in Bryn Mawr, Pa.

The study found 30 percent of survey respondents believe accidents are most likely to cause disability, but the reality is that arthritis is the leading cause. According to the Council for Disability Awareness, work-related accidents account for less than 5 percent of disabilities.

One-quarter of 20-year-olds will become disabled before they retire, according to the Social Security Administration.

Consumers overlook disability insurance

Large numbers of Americans have health insurance coverage, but the State Farm study finds many overlook the importance of disability insurance. Health insurance plans cover medical expenses, but disability coverage offers cash payments that can be used to pay household expenses and other bills.

However, instead of relying on insurance payments, most survey respondents say they will use cash reserves in the event they are unable to work because of a disability. While using cash may make sense for some individuals, the study notes nearly 71 percent of respondents told The American College their cash would run out in less than a year. In addition, 22 percent of women say their reserves would run out in less than a month.

When it comes to disability insurance, many Americans may not have fully considered their options. The State Farm study found 61 percent of women and 46 percent of men have never researched disability insurance. Less than 10 percent have purchased an individual policy.

According to the study, almost half of employed individuals have disability coverage through their employer. However, many are unaware of the limitations of these plans. For instance, 40 percent understand their disability insurance payments would last only for a specific length of time, but only 27 percent know employer-sponsored benefits are typically taxed.

Maryalene LaPonsie
Maryalene LaPonsie has been writing professionally for more than a decade on topics including education, insurance and personal finance. She holds a Bachelor's Degree in Political Science from Western Michigan University.

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