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On a typical morning in June of 2007, I was on my way to work.  I lived in Northern Kentucky at the time and was making my way north across the Big Mac bridge when traffic suddenly backed up.  I slammed on my brakes and managed to stop without rear-ending the car in front of me. Before I could breathe a sigh of relief, the car behind me slammed into my back bumper, pushing me into the car in front of me.  I was the meat in a three-car sandwich.

The accident was minor by most accounts.  There was minimal damage to the cars and everyone seemed to be ok, at first.  I noticed a bit of neck pain and in what seemed like dramatic fashion, the EMT’s put me on a stretcher and took me to the hospital.  I figured I’d be able to make it to work by lunch.  It didn’t quite play out that way.  In fact, I didn’t fully return to work for four months.

I wish I could say my situation was unique, but it seems like most things that affect our physical health happen this way – out of the blue.  One minute, we’re going about our routines and the next, an illness or injury demands our attention.  If we’re lucky, they get resolved quickly without a lot of disruption to our lives but sometimes, they send us in a whole new direction, one that we never saw coming.

My accident left me unable to hold my head up for long.  I could hardly dry my hair with a blow dryer, much less drive a car.  I was 24 and supporting myself, so not being able to work at the same time I had a bunch of medical bills was stressful to say the least.  Luckily for me, my employer had disability insurance.

I’m pretty sure at age 24, I hadn’t spent a single moment thinking about my disability coverage – or any other insurance coverage for that matter.  Many of us, at far more ‘seasoned’ ages than our twenties, haven’t given it much thought either.  Perhaps we skim the description at benefits election time, but not much more.  Is it because we are woefully irresponsible?  Are we lazy?  Do we just prefer to roll the dice?  I don’t think so.  I think it’s a symptom of how our brains deal with things like this (spoiler alert – not very well).

To begin with, it takes an immense amount of energy to learn how these policies work, read through policy options and ascertain what you need.  It’s also downright unpleasant and emotionally overwhelming to think about why you or someone you love would need disability, long-term care or life insurance.  Pair this with our brains’ limitations around estimating probabilities and we have a recipe for avoidance.

Our ability to gauge the need for insurance is limited by something called the availability heuristic.  This particular mental shortcut distorts our thoughts on how often something occurs.  We conflate the frequency of an occurrence with how easily examples of it come to mind.  If we can easily remember five times that a plane crashed, we assume the frequency of plane crashes is high.  If we hear more about homicides on the news than we do about strokes, we assume the former causes more deaths than the latter.  Of course, statistics show that you are much more likely to die of a stroke than you are from homicide, so sometimes judging purely on the ease of recall isn’t such an effective way to gauge probability.  Miscalculating the odds can make us overly cautious of some unlikely events, or in the case of insurance it can lull us into a false sense of security.

If you are personally familiar with someone who has prematurely passed away, has become incapable of work due to a disability or has needed long-term care, you are more likely to embrace the need for insurance.  Your ability to recall these events makes you more likely to believe it could happen to you.  If you don’t have that personal connection, the opposite will be true.  Here is what the statistics have to say:

  • On average, 1 in 6, 35-year old men will die before age 65; it’s one in 10 for women.
    • In a recent survey, only 5% of people aged 35-44 thought they would die before 65.
  • The Social Security Administration estimates that 1 in 4 people who are 20 years old today, will be disabled by the time they reach 67.
    • In a survey of financial advisors and insurance agents, 65% said most people need disability insurance. Only 48% thought they needed it for themselves and only 20% actually had coverage.
  • The Department of Health and Human Services says that someone who is 65 today has a 70% chance of needing some type of long-term care services during their lifetime. Men need an average of 2.2 years of care while women need 3.7 years.  20% of people will need care for longer than 5 years.
    • About 10% of people older than 65 have private long-term care insurance.

If these were the odds of winning the lottery, we’d be running to buy a ticket, imagining how the proceeds would change our lives forever.  An unexpected death, disability or long-term care event can change our lives in an equally impactful way, yet we often make snap decisions about coverage based on our gut instincts – instincts that could lead us astray because of the way our brains work.

With the help of a financial planner, determining your risk exposure and identifying a cost-effective way to mitigate those risks is the easy part.  The tough part is overcoming the misconception that it won’t happen to us.  The tough part is understanding we need to prepare for the storm when the sky is blue and the sun is out.  The tough part is making time to do that today, when so many other things seem more pressing.

Leave the gambling to the day traders and take some time to review your insurance coverage. The odds are, you’ll be glad you did.