| ||||||||||||
The Social Security program is really a package of three benefits under one umbrella.
- First, it is a retirement program.
- Second, it provides disability income insurance to workers who need it prior to retirement.
- Third, it provides a life insurance death benefit for spouses and children of workers who die before retirement.
Perhaps the disability income benefit provided by Social Security is the least understood of the three because it only pays workers who are totally disabled. It can be very hard to qualify for this benefit. A worker who is disabled must clear three major hurdles to collect disability benefits.
- You cannot do any work because of a medical condition.
- You cannot work at any other type of job or learn to do a new job.
- You must expect the disability to last for a year or more or expect it to result in death.
Even with these strict definitional hurdles, the Social Security Administration noted in their 2023 Trustees report that more than 9,000,000 workers collected disability benefits in 2022. As many or more are expected to collect these benefits in 2023.
Applying for Social Security disability benefits can take a long time. A worker who is sick or injured must provide medical records and doctor reports about the condition in detail.
To help jump-start the process, the Social Security Administration provides an on-line screening tool that is helpful for workers to use. This screening tool is really a decision tree matrix that will either encourage or discourage the worker in the application process.
In addition, for those who have major critical health issues, there are two programs that can help to speed-up the application process. One is called the Compassionate Allowance program and the second is called the Quick Disability Determinations program. Both are designed to help workers simplify the application process and receive needed benefits as soon as possible.
Your own disability protection
For most workers, their ability to earn an income can be their most valuable asset. The presence of the Social Security Disability Insurance (SSDI) program is an attempt to insure that asset. However, because it is designed to only be a total disability program, it is highly recommended that workers consider supplementing the government benefit with private disability income insurance.
Here are some of the advantages of privately owned disability income products.
Private disability insurance, or as it’s commonly referred to, individual disability insurance can serve as a primary form of income protection or as a supplement to SSDI and/or group benefits provided through your employer. (Disability income insurance calculator)
There are three major advantages to owning your own disability insurance policy.
- First, you own the policy, and it moves with you if there are job changes, which a policy provided by your employer may not.
- Second, it is funded with after tax dollars and as a result the benefits, when paid, are income-tax free.
- The definition of disability is often more lenient.
Disability definitions
When considering purchasing individual disability insurance, the key question to ask as is: “What is the definition of disability?”
This definition can vary widely among carriers and even products offered by the same carrier. It may be best to find a policy that uses a modified “own occupation” definition of disability. This typically means that to be considered disabled, the insured, due to a disability, must have an inability to do the primary and key functions of their job. Compare this definition with the more generic definitions some companies use or even the "totally disabled" definition required to qualify for Social Security benefits. This “own occupation” may be an advantage to you because it is much more liberal.
Disability insurance should serve as the foundation of a financial protection plan, and it should be there when it is needed most. Be mindful of policies that define disability as the inability to do any occupation. (Related: Disability income insurance: How to use it)
Another key benefit that should be considered is partial disability, or more commonly referred to as residual disability benefits. Partial or residual disability benefits are paid when you are working in a reduced capacity. Most carriers will use an income loss criterion in order to qualify for partial/residual benefits.
The vast majority of disabilities are caused by illness. Indeed, of disability claims made to MassMutual from 1972–2022, 89 percent were illness related.
While there are certainly illnesses that can cause you to stop working completely overnight, many illnesses progress over time reducing your ability to work. For that reason, it’s critical that every individual disability insurance policy has a partial or residual disability benefit.
Disability duration
One of the best reasons to consider individually owned disability insurance is its ability to replace earned income for an extended period of time. Many people think that if they were to stop working it would only be for a short time, typically three to six months. However, some disability claims typically last for more than two years. (Related: A resource guide for adults with a sudden disability)
When claims continue past two years, it’s important to hedge against inflation. Most, if not all private policies can offer a feature called a cost-of-living adjustment (COLA) for an additional cost. The COLA feature will increase the benefit each year you remain disabled, helping to ensure that you maintain as much buying power as possible. For people considering a private disability insurance plan, the COLA is a feature that can add value to your policy and stabilize a financial plan.
As mentioned above, the ability to earn an income in many cases is likely to be your largest asset. Said another way, your health is your wealth!
Do you hope to earn a larger income in the coming years? If so, it’s worth considering a rider that will allow you to increase your benefits without medical underwriting. The names of these features vary across the industry, but if you think you’ll earn more and want to scale your disability insurance to protect that income, be sure to discuss this type of feature with a financial professional.
Conclusion
Like the majority of people today, there are a few items that they never leave their home without. It could be car keys, wallet, purse, or phone. Private disability insurance is no different. It’s fully portable, which means that if you change things in your life, your policy will come along for the journey. Benefit packages can and likely will vary depending on the employer. Owning an individual disability policy can provide peace of mind knowing that a portion of your income is protected, regardless of the benefits offered through your employer or by the Social Security Administration.
Discover more from MassMutual …
Living with a hidden disability
Uncomfortable truths about disability that may surprise you
6 ways group disability income insurance may fall short
_____________________