Disability insurance is an absolutely vital form of insurance. A disability may result in one being unable to work, be it temporarily or permanently. This is more common that one might expect. Almost 30 million individuals in the United States live with a disability and about 1 in 4 of today’s 20-year-olds will be disabled before they retire. Surprisingly, only just over a third of workers in the private industry (34%) had access to long-term disability insurance while 38% of local and state government workers were covered in 2018 according to the Bureau of Labour Statistics.
Additionally, an overwhelming majority of these long-term disability plans were fully paid for by the workers’ employers (94 % in the private sector and 83% for local and state government employees). This means that the majority of American workers are not actively seeking long-term disability (LTD) insurance and will have to rely on Social Security Disability Insurance (SSDI) should they be unfortunate enough to experience disability.
Long-Term Disability Insurance Policies
Disability is defined in the Americans with Disabilities Act of 1990 as a physical or mental impairment which substantially limits at least one major life activity including working. Insurance coverage differs with regards to disabilities. Coverage may be restricted to disability which failure to work results in loss of income and both short-term and long-term disability insurance(LTD) compensates any workers. However, several policies also cover individuals if they experience chronic illness.
LTD insurance does not typically kick in when an individual experiences disability. The initial months are covered by short-term disability insurance and LTD insurance typically kicks in when the short term benefits are exhausted. The cost of premiums for LTD insurance varies according to several factors but should average between 1 and 3% of pretax monthly earnings. Coverage goes beyond work related injuries. Additionally, some policies provide the option – at an extra cost – for an individual to qualify for LTD insurance if they can no longer work in their chosen profession even if they can work elsewhere.
An example would be a guitarist who loses a thumb. LTD insurance typically provides 50% to 60% of monthly earnings for its beneficiaries and the payouts are made up until the retiring age of 65. Additionally, certain waiting periods may apply for these policies
Unfortunately, the employees whose employers pay for their LTD policies are most likely to be in a higher than average income bracket and work in industries with relatively low incidences of workers with disabilities. This means the most vulnerable of the population are at the highest risk should they or the breadwinners they depend on become disabled. In fact, for middle aged individuals (between 31 and 49), a third of them live below the poverty line and a total of 44% of all recipients earn less than 125% of the poverty line. This is where social security is vital.
Social Security Disability Insurance Policies
SSDI is an essential safety net for those who are unable to work and have lost their income. The coverage also extends to any dependants which an individual was supporting. However, there are some serious issues regarding SSDI. The requirements to qualify are quite strict and only about 40% of those who apply for the insurance policy are covered. Despite this hurdle, there are about 8.5 million individuals receiving benefits from the program and an additional 117, 000 spouses and 1.5 million children making the total approximately over 10 million. This is a huge leap in half a century considering only 1.5 million in 1970.
The Social Security Administration (SSA) is responsible for administering the SSDI program. About 156 million people who work in the United States are covered by the fund overall. In order to qualify for coverage, specific criteria need to be met,
- Adults are required to have worked at least a quarter of their adult lives to qualify.
- They need to have worked recently (in at least five of the last 10 years),
- They must suffer from a severe physical or mental impairment which has lasted for at least five months and is reasonably expected to last for at least a year or result in death, and
- These impairments must render them, not just unable to do their past work, but any form of substantial work – which is defined in 2019 as earnings of $1,220 and $2,040 for the blind per month.
- The individuals must not have reached the age of retirement – as the benefits stop after 65.
This is a much stricter definition than that which is presented by LTD policies. Individuals are increasingly turned down when they apply for SSDI benefits. In the decade ended December 2010, technical denials rose from just over 104,000 in 1999 to 878,000 in 2010. Further, the allowance rates, which are the ratios of medical allowances to all medical applications excluding technical denials for that year, fell from 61% to only just over half (54.8%).
All in all, over 1.5 million individuals were denied SSDI benefits in 2010 and it is likely that this number has risen in subsequent years. There is a process that individuals can follow to have their cases reconsidered however, there is a significant backlog with waiting times stretching to an average of almost two years.
Additionally, there are almost a million people waiting to find out the outcomes for their appeals. Those who are ultimately unsuccessful with their application for SSDI may qualify for Supplemental Security Insurance (SSI). This benefit is for disabled persons who have not worked long enough or earn too little under SSDI. However, the same disability criteria are applied to the program.
Overall, it is vital for individuals to apply for LTD if they can afford it. With such a large percentage of workers living without coverage, understanding the challenges facing SSDI applicants is essential. There are resources available, such as The Good Law Group, which may be able to assist with SSDI applications and appeals.