Loss of income due to accident or sickness is a life risk exposure similar to that of the death of a household provider, except that the actual cash need is greater since the disabled provider has ongoing needs in addition to those of the spouse and children.
Disability income insurance pays a benefit when someone is unable to work. To be more specific, benefit payments are triggered by loss of income as a result of accident or sickness.
What is the potential cost (amount of income lost) to a disabled person and his/her dependents? According to the 2000 U.S. Census Bureau report, the median annual earned income in the United States in 1999 was $41,994. Therefore, if an average income earner suffered a disabling accident or sickness for a period of five years the potential loss would be $209,970, not counting increases due to inflation, seniority or promotions. Of course, an unexpected interruption of income for a period of months or years, could require that investments be liquidated prematurely, or could result in additional indebtedness or other setbacks, causing the actual cost to be greater. A disability lasting 10 years would cost an average wage earner $429,940 just to replace static wages. This type of loss would cripple most American families financially.