Plans put disability insurance in reach
By Jay MacDonald • Bankrate.com

Here's a familiar midnight wake-up call: What will happen to my family's financial future if tomorrow I am hit and killed by a bus or injured and unable to work?

Fortunately, there are insurance products to cover either unpleasant scenario.

Life insurance, be it the cash-value whole life insurance or the more popular term life variety, can provide for your spouse and children upon your death.

Meanwhile, disability income insurance can replace up to 60 percent of your monthly income for either a fixed period or until you reach age 65.

The good news is that these two types of insurance -- life and disability -- can guarantee that your family will be financially protected in the event of a calamity.

However, the bad news is that it's tough for most American families to afford both. As a result, some people may insure against one calamity and hope like crazy that the other one doesn't happen first.

"To say you're going to take one of them rather than the other, I can't get my arms around that idea," says Joseph Belth, professor emeritus at Indiana University's Kelley School of Business and author of "Life Insurance: A Consumer's Handbook."

"These are both very serious exposures," he says.

Odds that a 20-year-old worker will:

• Die before retirement: 16 percent. • Become disabled before retirement: 30 percent.

Recently, a handful of major insurers have begun tinkering with their term life products to develop affordable hybrid term life and disability insurance policies, or bundled packages aimed at the demographic most at risk: the so-called "middle market" Americans, ages 25 to 49 with $50,000-plus household income and less than $500,000 in invested assets.

The assumption is that if you're wealthier than that threshold, you're probably able to weather disruptions to your income stream without a disability insurance policy. And, if you fall short of that benchmark, you likely cannot afford the premiums.

Combining life and disability insurance is hardly a new concept. Belth estimates insurers have been offering whole life policies with disability insurance riders for 85 years. But the success of term life in recent years may give underwriters a new way to introduce disability coverage, a traditionally hard sell, into the equation.

It remains to be seen whether the new product can be offered at a price point acceptable to America's increasingly stretched middle-market demographic.

The knee bone's connected to the house note
Marianne Purushotham, research actuary with LIMRA International life insurance research consultants, has been studying the latest term/disability insurance hybrid products. So far, she has identified five companies that offer some form of this hybrid.

Companies that offer term/disability insurance hybrids:

• AIG • Mutual of Omaha • Aegon/Transamerica • Farm Bureau Life • Protective

The need for disability insurance coverage is real: The Social Security Administration says studies show that a 20-year-old worker has a 30 percent chance of becoming disabled before reaching retirement age. By contrast, your odds of dying before you retire are about half that (16 percent), according to Robert Anderson, chief of the mortality statistics branch at the Centers for Disease Control and Prevention.