All workers risk losing income because of being handicapped but few have carefully examined the advantages of private disability insurance vs. Social Security disability insurance (SSDI). In general, disability insurance of any kind can help to lessen the economic adversity faced when one becomes unable to work because of a handicap. While SSDI provides significant protections to workers who have contributed to Social Security it requires meeting a rigorous definition of total disability. In many situations, private disability insurance may offer more liberal coverage and advantages that are bigger.
What’s Social Security Disability Insurance?
Social Security uses a strict definition of disability which excludes both short-term incapacity and partial impairments.
Social Security pays only for total incapacity. No benefits are payable for partial disability or for short-term incapacity.
“Handicap” under Social Security is based on your inability to work. You’re considered to really have a disability under Social Security requirements if:
- You cannot do the work you did.
- You cannot adapt to other work due to your medical condition(s).
Your disability has lasted or is anticipated to continue, for at least one year, or to result in death.
The program rules assume working families have access to other resources to provide support during intervals of short-term disabilities including:
- Workers’ compensation
The Social Security Administration refuses two-thirds of all disability claims primarily because of this strict definition of handicap.
Statistics demonstrate 60 million people, or more than one in every six American residents, collected Social Security disability insurance benefits in June 2015. While 75 percent of them received benefits as retirees or elderly widow(er)s, 18 percent (11 million) received social security disability insurance benefits, and three percent (two million) received benefits as youthful survivors of deceased workers.
What’s Private Disability Insurance?
About 30% of workers have disability insurance provided through their work. Many others decide to purchase private disability insurance themselves to safeguard against unforeseen loss of income or to supplement other insurance plans. Private disability insurance can provide significant advantages over SSDI, although the terms of insurance policies can vary greatly from plan to plan.
One of the best advantages of private disability strategies is their more expansive definitions of impairment. While SSDI demands a showing of total disability, many plans will pay benefits without requiring a person to show that she or he is able to do no work in the slightest. While definitions vary from plan to plan, three are common:
“Own occupation” coverage ensures policyholders against impairments that keep them from performing the duties of their occupation.
“Own occupation” coverage with time limits ensures policyholders when they cannot perform their occupational responsibilities, but for a small time. These policies generally contain a “Change in Definition” feature where, after a certain amount of time, the conventional moves from “own occupation” to “any profession.” Most commonly, this is after two, one, or five years.
“Any occupation” coverage explains impairment as being not able to perform any job. This is really similar to that and a much stricter definition.
Under the first two of these definitions would be considered disabled, at least for a time. She would be able to receive without needing to show that she could do no work whatsoever benefits to replace her lost income.
Another advantage to private insurance is that it might replace a greater part of someone ‘s lost income than SSDI would. SSDI benefits are based on your average lifetime earnings and could not surpass $2,642 a month in 2014. People with private insurance could possibly have the capacity to receive more than this. Many policies cover around 70 percent of a worker’s wages at the time when their impairment appears.
How is Social Security Disability Insurance distinct from private disability insurance?
There are two big ways that SSDI and private disability insurance differ. The largest difference is that private insurance is much more easy to qualify for. So long as you work in a career that is comparatively safe and are pretty healthy, you’ll be able to buy affordable long-term disability insurance. Even if you’re not healthy or you also work in a dangerous job, you can often still get private insurance (though it might cost more).
The other big difference is that you don’t need to be completely disabled in order to collect from a private disability insurance plan. When you have an “own profession” rider — a common attribute in handicap coverages — a benefit will be paid by the insurance company as long as you cannot work in your primary occupation. In the event you were a lawyer, for instance, as well as you were prevented by a disability from practicing law but did not keep you from teaching part time, your insurance provider would pay your own monthly benefit.
There are some smaller differences also, especially relating to how they influence your social security benefits as well as how private benefits and SSDI benefits are taxed. The rules change depending on what type of private insurance policy you have as well as are different in every state.