64% of Americans don’t understand disability insurance

A majority of higher-income Americans with limited savings, or those who would benefit the most from long-term disability insurance, don’t understand what disability insurance is.

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By

Andrew HurstSenior Editor & Licensed Auto Insurance ExpertAndrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

Edited by

Pat HowardPat HowardManaging Editor & Licensed Home Insurance ExpertPat Howard is a licensed insurance expert and managing editor at Policygenius. Pat has written extensively about the home insurance industry and his insights as a subject matter expert have appeared in several top tier publications, including The New York Times, The Wall Street Journal, CNBC, and Reuters. Pat has a bachelor's degree in journalism from Michigan State University.

Published|5 min read

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If you’re injured or become ill and can’t work, individual disability insurance provides direct payments that you can use to cover life’s expenses. Disability insurance essentially replaces your regular income, making it a valuable safety net for people with a steady income but limited savings. 

But despite its importance, most people don’t understand what disability insurance is or how it works, according to the 2024 Policygenius Disability Insurance Literacy Survey. When asked to choose a response option that best describes disability insurance, 64% of people picked either the definition of a different type of financial protection (like life insurance or health insurance) or said they weren’t sure.

Key findings

  • When asked to pick the best description of disability insurance, 36% of Americans picked the correct answer, while 64% either chose the incorrect answer (28%), selected “none of the above” (14%), or said they were not sure (23%).

  • 13% of US adults thought disability insurance was health insurance, 7% thought it was Social Security, 4% thought it was life insurance, and 3% thought it was a rebate program for disability equipment and mobility aids.

  • 74% of US adults have six months or less in savings. Of those with limited savings:

    • 10% have four to six months in savings

    • 17% have two to three months in savings 

    • 28% have one or less months in savings

    • 19% have no savings at all

  • 10% of adults age 18 to 34 have more than a year in savings, compared to 30% of adults 55 and up.

  • Of U.S. adults with an annual salary of $80,000 or more and six months or less in savings — or the group that stands to benefit the most from income protection — 59% don’t understand disability insurance.

Majority of people who would benefit most from disability insurance don’t understand how it works

Disability insurance generally has the most upside for high earners and young people who are still in the early stages of their careers. A long-term disability insurance policy can potentially replace millions in future earnings while protecting any savings if you become disabled and can't work.

But many high earners and young people, the groups who stand to benefit the most from disability insurance, don’t know what it is or how it works.

Most high earners don't understand disability insurance, especially those with limited savings

We found that just 44% of higher earners (annual income of $80,000 or more) correctly described disability insurance, while 56% were either unsure what it was (17%), gave an incorrect answer (30%), or selected “none of the above” (9%).

We also found a correlation between not knowing what disability insurance is and having a limited savings cushion. Of higher earning Americans with six months or less in savings, 59% answered incorrectly or were not sure, compared to 52% of higher earners with more than six months in savings.

More than 3 in 4 young adults don’t know what disability insurance is

Just 22% of younger adults (age 18 to 34) picked the correct definition of disability insurance, which was much lower than that of other age groups, with 33% of 35 to 54 year olds and 48% of older adults (age 55 or older) choosing the correct definition.

3 in 4 US adults have six months or less in savings 

Seventy-four percent of all adults have six months or less in savings, and 19% have no savings at all. Twenty-eight percent have just one month or less, 17% have two to three months, and 10% have four to six months. When it comes to a longer safety net, 19% of adults have more than a year in savings.

While younger adults are the least likely to understand disability insurance, our findings suggest they need it more than ever. Half of people age 18 to 34 said they have one month or less in savings, and altogether 82% said they have six months or less saved up. 

That said, the younger adults are far from the only ones with limited savings. While adults age 55 or older are roughly twice as likely to have more than six months in savings (38%) compared to younger adults (18%), 62% of older adults said they have half a year or less saved up, as did 81% of those ages 35 to 54. 

4 in 10 people thought disability insurance was something else entirely

In all, 64% of respondents didn’t know what disability insurance was. Nearly a quarter (23%) said they weren’t sure what disability insurance was, while 42% either chose an incorrect definition (28%), sometimes confusing it for another form of insurance entirely, or selected “none of the above” (14%).

Looking at the incorrect definitions chosen, 13% picked the definition of health insurance (“A type of insurance that pays for all your medical and hospital bills if you’re sick or injured”); 4% picked the definition of life insurance (“A type of insurance that provides your loved ones with lump sum payments if you’re disabled or deceased”); 3% thought it was a type of insurance that offers rebates on disability equipment and mobility aids; and 7% thought it was a government-run program that provides $1,000 monthly payments if you’re injured or become ill and cannot work.

 Conclusion

While you can both have disability insurance and not understand how it works — like if you opt into coverage provided by your employer just because it’s offered — our findings suggest that a majority of people may not know how (or when) to take advantage of their benefits.

Furthermore, group disability insurance plans offered through employers will often provide benefits for a maximum of six months, which means that even if you have this kind of policy you’ll need your own private long-term disability insurance to cover anything beyond that. By not knowing how disability insurance works, people may be without the long-term coverage they need.


Methodology

Policygenius commissioned YouGov Surveys to poll a nationally representative sample of 2,353 adults aged 18 and older. The survey was carried out online between April 25-29, 2024. Figures have been weighted and are representative of all US adults aged 18+. The average margin of error for responses is +/- 2%. For more details, see YouGov’s methodology. Percentages were rounded to the nearest whole number, so some totals may not add up to 100.

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Author

Andrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

Editor

Pat Howard is a licensed insurance expert and managing editor at Policygenius. Pat has written extensively about the home insurance industry and his insights as a subject matter expert have appeared in several top tier publications, including The New York Times, The Wall Street Journal, CNBC, and Reuters. Pat has a bachelor's degree in journalism from Michigan State University.

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