What would you do if you were suddenly unable to work? If you’re like most Americans, losing your job due to illness or disability would be financially disastrous, even if you’re qualified for SSDI, the work credit-linked federal safety net program. That’s because very few Americans have significant savings and so, even with SSDI and other programs like Medicaid, which offers healthcare coverage for retirees and certain disabled individuals, not working is financially untenable. But what if there was an alternative way to protect yourself, your family, and your finances?
Given the significant limitations of SSDI and other federal programs, individuals who want to protect themselves from financial hardship due to disability may wish to consider private disability insurance. Choosing long-term disability coverage can offer a number of critical protections that federal programs cannot, without forcing you to give up your SSDI coverage.
Timelines: Get Support Faster
Among the many reasons why private disability insurance is preferable to SSDI for those with a strong work history is the length of time it takes to qualify for coverage. SSDI is infamous for its long wait times; first, you need to demonstrate that you have already been sick or injured for at least a year or that your disability is expected to last that long or result in death.
Documenting your disability for your application can require a number of doctor’s visits and tests, and once your documents are submitted, it typically takes three to five months to receive a letter of determination stating whether you qualify. Many people need to apply multiple times, often with help from a disability lawyer, in order to receive benefits. Nationally, the wait time to actually receive a hearing after sending in your initial documents runs to over a year.
In contrast to SSDI, private disability insurance policies include a set waiting or exclusion period after your injury or illness before payouts begin. These waiting periods can be as long as a year, but many are somewhere between one and three months. There are also short-term policies with briefer waiting periods and which cover limited periods of disability, not just permanent illness or injury. You can learn more about disability insurance at MeetBreeze.com.
Funding: The Payout Is Higher
Another reason that private disability insurance is preferable to SSDI is that the payments you will receive are typically much higher, even though both are based on your work history and income. This is because, when determining how much money you’ll receive in SSDI payments, the Social Security Administration uses a calculation system known as the Primary Insurance Amount (PIA).
As of 2021, successful applicants for SSDI receive payments equal to 90% of their monthly earnings up to $996, and then an additional 32% of earnings between $997 and $6,0002, and 15% of monthly earnings over $6,002. This yields an average monthly benefit of $1,277, though payment can vary widely based on this formulation.
Unless your current earnings are quite low, private disability insurance will pay significantly more than federal insurance, and you can collect both simultaneously once you’re approved for SSDI. That’s because private long-term disability insurance typically replaces between 60% and 80% of your monthly pre-disability income.
What do all these values mean in practice? If, for example, you were making $5,000 per month and receiving just 60% back from your private policy, you would be receiving a monthly $3000 payment. Under the PIA, however, would be $2177.60, but the more you’re earning monthly, the greater the gulf between your SSDI and private insurance payments would be. This is especially true if your private insurance pays out at closer to 80% of your pre-disability income, rather than 60%.
Ability To Work: The Partial Disability Advantage
In order to qualify for SSDI, you not only have to pass their rigorous application process, but you need to be considered fully disabled. That means that you cannot work any job – not just the job you held before you became sick or injured. In order to receive at least partial payment from your private disability insurance, however, you only need to be experiencing a significant decrease in your income due to your new disability. From there, your insurance can make up a percentage of what you lost.
Another distinction that private disability insurance makes when it comes to your ability to work is that of “own occupation” versus “any occupation.” While SSDI uses an “any occupation” from the beginning – meaning you can only qualify for coverage if you can’t work in any role, private insurance typically allows for about a two year period during which only the “own occupation” framework applies. It’s only after the period specified in your policy that your income is gauged based on your ability to earn more generally.
The Combo Platter: Your Policies Can Work Together
As noted above, you can receive SSDI while also receiving payments from your private disability insurance, and by receiving both at once you may be able to make up the full amount of your pre-disability income. That being said, it’s important to read your policy’s terms carefully, as there are different ways that private insurance companies address supplementary income.
In some cases, especially if you’ve been injured on the job, your workers compensation payments may be deducted from your private disability insurance payments. That’s why you need to be aware of how different payments impact each other. And, even if you are subject to these deductions, it’s generally advantageous to having multiple payment streams in play when you can’t work. Added funds can also make it easier for you to access necessary medical care if you don’t yet qualify for Medicare.
Because of the challenges associated with receiving federal disability support, as well as how low federal payments tend to be relative to pre-disability earnings, having private disability insurance can be hugely beneficial. And, with studies suggesting that at least a quarter of 20-year-olds will suffer an illness or injury requiring at least three months out of the workforce before they retire, private disability insurance isn’t just a safety net – it may actually be a financial necessity.
