Many individuals take their ability to work and earn a living for granted, but perhaps they shouldn’t: according to the Social Security Administration, one in four 20-year-olds will have a disability for at least 90 days before they turn age 67.1 Social Security Disability Insurance (SSDI), which is funded by Social Security levies, is offered by the government as a result.
It can provide you with income to live on if you become disabled, just as other types of disability insurance, often known as disability income insurance. Nonetheless, there is a lot of misunderstanding regarding SSDI and other types of disability compensation. This article can be useful by responding to three important queries:
• What does SSDI cover, and how does it operate?
• How does SSDI compare to other forms of disability insurance?
How do I enroll in a personal disability insurance plan? What SSDI includes and how it operates
Whether they are government-sponsored, like SSDI, or private coverage from an insurance provider like Guardian, all disability insurance policies share a few characteristics. By analyzing SSDI’s features and contrasting the data with alternative possibilities, you may better comprehend disability insurance. The following are the top five elements to consider:
• Premium: The amount you (or your company) pay each month or each year to purchase the insurance.
• Waiting period: Also known as an elimination period, this is the amount of time you must wait before getting benefits after being declared handicapped.
• Whole disability definition: What it takes to be eligible for total disability benefits is defined specifically in each disability policy. In general, there are two categories of definitions:
If a disability prevents you from working in your specialty or field, you may be eligible for benefits under the own-occupation definition.
o An “any-occupation” definition states that you can only receive disability benefits if you are completely unable to work.
• Benefit: The monthly payment you receive if you are too ill or injured to work.
• Benefit period: The duration of your eligibility for benefits.
The premiums for SSDI are covered by a portion of your Social Security taxes because it is a government-sponsored disability insurance program that is included in your Social Security benefits. The current social security tax rate is 6.2% for employers and 6.2% for employees, for a total of 12.4%. If you are self-employed, you are responsible for paying the whole 12.4%.
Paying Social Security taxes does not guarantee coverage. Also, you must have accrued a sufficient number of Social Security work credits, which are determined by your annual total of wages or income from self-employment. It takes a while to qualify for SSDI benefits because you can only earn up to four credits per year. In general, you require 40 credits, 20 of which were obtained in the ten years prior to your disability. (Younger workers, however, might be able to qualify with less credits.)
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There is a five-month elimination period before you can begin receiving payments, which is similar to many individual long term disability (LTD) plans. The waiting period for payments also implies that SSDI might not offer protection for shorter-term disabilities that prohibit you from working for a few weeks or months. Short term disability insurance, usually known as STD, can offer that coverage (see below).
The Social Security Administration (SSA) has a rigorous any-occupation definition of disability that only includes a small number of the serious medical illnesses specified in the SSA’s Blue Book. This means that SSDI only provides benefits for chronic or ongoing medical conditions that render you unable to perform any type of work. No matter if a disability prohibits you from working in your area, whether you are a teacher, plumber, or brain surgeon, you will not be eligible for SSDI payments as long as you are physically capable of holding any job, no matter how low-paying or unskilled.
The application process for SSDI compensation is very rigorous. Around 2/3 of these claims are rejected after the initial application, which involves significant documentation and can take months to complete 2. While the initial decision can be appealed, the process can stretch out for years. 2
How long can you receive SSDI? If your disability doesn’t go away sooner, the benefit period lasts until age 65, at which point you should be eligible for Social Security retirement payments.
Does SSDI offer sufficient security?
SSDI offers a longer benefit period than other types of disability insurance. But, unless you experience a catastrophic disability, you won’t be eligible for benefits due to the rigorous “any-occupation” definition of disability. It can be an issue for professionals and tradespeople who have spent years earning educational degrees and certificates that allow them to earn high wages: it may require them to accept any work or forgo income totally. And even if you do qualify for SSDI, the benefit amount of just over $1,000 may not be enough for most people to live on. For long term disability income protection, experts advise against relying solely on SSDI.
How SSDI compares to other forms of disability coverage
Disability Insurance for the Short Term
This coverage, sometimes known as STD, is for short-term illnesses and injuries that are not covered by SSDI or long-term disability insurance (LTD). Employers most frequently offer short term disability plans as a free or low-cost group benefit to all of its employees, with the employer typically covering all or a portion of the premium costs. The elimination period is substantially shorter, often two weeks, compared to SSDI or long-term disability programs. Although STD benefits don’t entirely replace your income, they often account for 60% to 80% of it. Unfortunately, such payments are only made for a little amount of time; normally, the benefit period lasts between three and six months or until you can resume working.
The term “disability” refers to any medical ailment or accident that prevents an individual from performing their job duties. Short term plans often assume that you will return to your present employment once your condition improves, therefore “own-occupation” or “any-occupation” definitions of disability are typically not a concern. However, depending on the plan, some conditions, such as mental illness or pregnancy, may or may not be covered.
Like other types of disability benefits, STD benefits are not provided automatically; you must submit a claim. Medical documents or other documentation indicating you have a disability will be required by the insurance carrier. Contacting your HR department should be your first move if you have coverage via your employer. They will usually guide you through the procedure. Yet, it’s crucial to keep in mind that STD benefits virtually never last longer than a year, even with the most generous coverage. You need a long-term plan for disability protection that will last longer.
Long-Term Disability Insurance for Individuals
Also called LTD, this type of policy is for the same kinds of long-lasting disabilities covered by SSDI – but it may be considered easier to qualify for, and the benefit amount could be much more generous, depending on the policy and circumstances. Why don’t more people purchase a long-term disability plan? Cost is the primary deterrent. For a thorough long term disability plan, you should budget between 1% and 3% of your yearly income. 3 It’s crucial to remember that the premium price is less expensive than the 12.4% Social Security self-employment tax rate.
Several plan elements can be changed to assist reduce premium rates, and individual long term disability insurance coverage is typically thought to offer more customization than SSDI. For instance, depending on the exact policy, the waiting period may be longer or shorter than SSDI. A longer term will often result in lower rates, while a shorter period may result in higher premiums.
The quantity of money you receive and how simple it is to qualify for benefits are two perks of acquiring a private LTD plan. With a long term disability plan, the benefit amount should replace 60% to 80% of your after-tax income. A greater benefit could make the policy unsustainable, causing you to let the coverage lapse; a lesser benefit could leave you struggling to make ends meet because benefit levels affect premium cost.
You can select an own-occupation definition of disability or an any-occupation definition when you apply for an individual LTD coverage. Either kind of policy can be advantageous, depending on who you are and what you do. With a little retraining, the individual would be able to carry out a variety of desk occupations for comparable income, even inside the same firm, in addition to completing his or her usual job and walking with ease. Such a person may benefit from an individual long term disability insurance policy with an any-occupation definition of disability. Although it would only protect them in the event of a more serious disability, they might receive more income than they would from SSDI.
But, for many professionals and independent business owners, that level of security might not be sufficient. A surgeon who is injured in a vehicle accident and loses a portion of a finger might never be able to operate again. Even if a professional is still physically capable of performing other types of work, limitations that prevent them from performing the things they do best can have a significant negative impact on their earning potential and lifestyle in both of these scenarios, among countless others. They ought to take into account long term disability insurance with an own-occupation definition of disability because of this. Insurance firms provide various own-occupation coverage options to help you customize benefits more affordably to your needs, even though these policies can be more expensive than any-occupation plans. Under their own-occupation definition of disability, Guardian, for instance, provides a number of options:
• True Own-Occupation According to this definition, you are still eligible to receive your full benefit payment while working a different type of employment if you are unable to perform your normal job but are willing and able to do so in some other capacity. The surgeon in the aforementioned example may accept a teaching or consulting position and continue to receive replacement income for the duration of the benefit term if they had disability insurance for physicians that met this criterion.
• Modified Own-Occupation If you are unable to do your regular job duties and are not otherwise gainfully employed, this definition provides a full benefit. As a result, the lawyer in the aforementioned scenario would continue to get benefits as long as they were not working; however, if they chose to begin working as a legal consultant, their income benefits would end.
• Real Own-Occupation for Two Years This criterion of disability allows for True Own-Occupation for a period of two years. Your coverage changes to a Modified Own-Occupation definition for the rest of your benefit period if you are still handicapped after two years.
• Modified Own-Occupation for Two Years A Modified Own-Occupation definition for the first two years is another alternative. If you are still handicapped after two years, your coverage changes to an Any-Occupation definition, which means that you are unable to work in any occupation as a result of illness or accident.
Another way to keep premium costs under control is through the benefit period. A long term disability coverage for an individual may provide benefits for as little as two years or until retirement (or until you recover from being disabled). Of fact, a policy will cost more the longer the benefit duration.
How to obtain a personal disability policy
An employee benefits package frequently includes short term disability coverage. If it’s available, you should make sure you’re signed up: You might be able to get group coverage at lower rates, and your employer might foot some of the bill (or even fully cover STD charges). Individual long term disability plans are not typically offered by companies, and even if they are, they may be limited in features and benefits.
Talk to a financial expert to get the thorough long term disability policy you require if you’re worried that SSDI wouldn’t cover your needs (or fill in the gaps of your workplace LTD with a supplemental plan). If you don’t know one, a Guardian financial professional can assist you. Make sure the practitioner is knowledgeable about the nuances of purchasing an individual disability policy. Tell your financial advisor as much information as you can about your financial condition and any worries you have so that they can begin researching your choices for disability insurance coverage.
Discuss several coverage scenarios: What happens if you have a disease that prevents you from working for a while? What if your physical condition prevents you from working as efficiently as you could? The more you learn, the more you’ll see how valuable individual long term disability insurance is, especially when compared to the meager protection provided by Social Security disability benefits.