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One of the most common ways your borrowers can suffer significant loss of income is through a disability. While many disabilities cause only temporary loss of income, the average long-term disability lasts 31.2 months.
This extended income loss can be devastating for your borrowers at any time, but with inflation reaching the highest point in 40 years earlier this summer, it could make getting through an already difficult situation that much harder.
Consider the following statistics from the Council for Disability Awareness:
- Just over one in four of today's 20-year-olds will become disabled before they retire.
- Over 37 million Americans are classified as disabled; about 12% of the total population. More than 50% of those disabled Americans are in their working years, from 18-64.
- 61% of surveyed wage earners personally know someone who has been disabled and unable to work for three months or longer.
- 64% of wage earners believe they have a 2% or less chance of being disabled for three months or more during their working career. However, the reality is the same wage earner has about a 25% chance.
- Less than 5% of disabling accidents and illnesses are work-related. The other 95% are not, meaning workers’ compensation doesn’t cover them.
Few Borrowers Are Financially Prepared for Navigating a Loss of Income
The number of people who will experience some duration of disability during their career is worrying because many of those individuals will not have the emergency savings needed to cover loss of income.
According to the Consumer Financial Protection Bureau’s recent report on Emergency Savings and Financial Security, “Nearly a quarter of consumers (24%) have no savings set aside for emergencies, while 39% have less than a month of income saved for emergencies and 37% have at least a month of income saved for emergencies.”
In January 2021, before inflation really started to take off, 56% of Americans could not cover a $1,000 emergency expense with money from savings. With savings from stimulus checks spent, inflation hitting 9.1% earlier this summer, and the cost of virtually everything rising, that percentage is likely lower, today.
Products that Help Protect Your Borrowers’ Credit Through High Inflation
With such a thick fog of uncertainty surrounding the economy, struggling to make loan payments with a reduced or lost income for any amount of time is the last burden your borrowers should have to bear.
Unfortunately, an unexpected total disability or death in one of your borrower’s lives could significantly disrupt their household’s income level—and thus, standard of living—in an instant, making financial commitments difficult to meet.
If your financial institution wants to offer your borrowers value by helping protect their credit in such circumstances, consider recommending payment protection products like credit life and disability and/or involuntary unemployment insurance, or a debt cancellation program.
Now more than ever, your borrowers could use the peace of mind that comes with knowing their loans are covered if the worst happens.
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