Plans Put Disability insurance in Reach-3

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.

Yet fewer than 30 percent of U.S. workers have any form of long-term disability coverage, according to the Bureau of Labor Statistics and AARP.

Employer-sponsored disability plans typically only cover up to 50 percent of your paycheck. How long could you live on half-pay? Yes, Social Security disability benefits kick in after a year and last until death, but to qualify, you must be unable to engage in any type of work.

So why don't we buy disability insurance? Purushotham says we typically say we can't afford it, when what we really mean is we're not sure we need it.

"The big problem with disability insurance is that people, especially young people, aren't aware of their risk of suffering a disability and that you can insure against it," she says. "A lot of people are aware of the idea of life insurance, but many middle-market people don't know there is a disability product they can buy."

There's also a distribution issue surrounding disability insurance. These are complex policies that don't lend themselves to easy side-by-side comparisons in the same way as, say, term life policies. Disability is a less standardized product than some other forms of insurance.