In this country, millions of people rely on disability benefits every day to financially protect themselves should the unexpected occur.
Therefore, it’s important to understand what options you have when it comes to disability benefits.
Today, we explain the differences between Social Security disability insurance (SSDI) and private disability insurance benefits, as well as why you may need both.
What is Social Security Disability Insurance?
Social Security uses a strict definition of disability which excludes both short-term disabilities and partial disabilities.
Social Security pays only for total disability. No benefits are payable for partial disability or for short-term disability.
“Disability” under Social Security is based on your inability to work.
- You are considered to have a disability under Social Security requirements if:
- You cannot do the work you did before.
- You cannot adjust to other work because of your medical condition(s).
- Your disability has lasted, or is expected to last, 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 periods of short term disabilities including:
- Workers’ compensation
The Social Security Administration initially denies two-thirds of all disability claims primarily because of this strict definition of disability.
Statistics show 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 young survivors of deceased workers.
What is Private Disability Insurance?
Private disability insurance has its own subset of coverage types, which include:
- Individual disability: Most individuals purchase these policies one-on-one, but discounted coverage may also be offered through the beneficiary’s employer. Individual disability insurance includes short-term disability and long-term disability plans and normally requires the beneficiary to be healthy enough for approval of coverage.
- Group disability: This coverage is provided by the employer and like individual disability insurance may provide both short-term and long-term disability plans. For example, your short-term disability payments would stop when the long-term plan begins.
- High limit disability: This type of plan is usually a supplement to other disability coverage and is designed to pay a percentage of the covered individual’s income should they become injured or hurt and unable to work.
- Key person disability: Benefits from this plan are paid directly to the company to protect them against the loss of a key employee due to disability. This type of disability insurance is not paid to the person with disability but to his or her employer.
- Business overhead expense disability: This insurance is similar to key person disability except it covers overhead expenses like office rent or maintenance in the event a business owner comes to have a disability.
- Worker’s compensation: Almost always employer sponsored and required in most states, this coverage provides payments directly to individuals who become injured on the job.
Advantages of Private Disability Insurance Over Social Security Disability Insurance
Though the terms of insurance policies can vary significantly from plan to plan, private disability insurance can offer important advantages over Social Security disability insurance.
A significant benefit over Social Security disability insurance is private disability plans have more expansive definitions of disability. While Social Security disability insurance requires you to show total disability, many private plans will pay benefits without the requirement to prove you cannot work at all.
Another advantage to private insurance is it may replace a greater part of an individual’s lost income than Social Security disability insurance. Social Security disability benefits are based on your average lifetime earnings and cannot exceed $2,663 a month in 2015.
Individuals with private insurance may be able to receive more than this amount as many policies generally cover around 70 percent of a worker’s salary when he or she becomes disabled.
Social Security Disability Insurance Benefits and Private Benefits Are Not Mutually Exclusive
Fortunately, you don’t have to take one or the other as it is possible to receive multiple forms of disability benefits at once. If you qualify for Social Security disability insurance, you can receive payments from both Social Security disability and private insurance.
If the amount of disability benefits you and your family are eligible to receive is not enough to cover your essential living expenses you should talk to your employer about a group disability benefits plan or buy an individual disability benefits plan. A private disability insurance benefits plan can protect your financial security by helping you pay bills like your mortgage, car payments, and utilities.
Be sure to fully understand your disability benefits coverage. This is where an insurance agent can be a valuable resource. They can carefully explain the definition of disability in your policy, list the specific terms and conditions, and guide your decision around which private disability benefits plan is right for you.