How is SSDI different from private disability insurance?

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How is SSDI different from private disability insurance?

While shopping for long-term or short-term disability insurance, you may come across information about Social Security Disability Insurance, or SSDI. SSDI is a federal program designed to provide income to people suffering from a disability who cannot get gainful employment. While SSDI may sound similar to a private disability insurance policy, there are several differences worth noting, especially if you’re planning on relying solely on the SSDI program in the event that you become disabled.

What is long-term disability insurance?

Long-term disability (LTD) insurance provides income replacement in the event that you experience a disability and are unable to work. Typically, long-term disability policies cover about 60% of your pre-tax income, roughly working out to what you would normally receive from a post-tax paycheck.

LTD is frequently paired with a short-term disability (STD) insurance policy. STD policies usually cover the first one to six months that you are unable to work. LTD will then cover you for the rest of your disability, or until the benefit period is over. Read more about long-term disability insurance here.

What is Social Security Disability Insurance?

Social Security Disability Insurance (SSDI) is a federal insurance program designed to help provide income for people who cannot get gainful employment due to a disability. If you qualify for SSDI, you will be paid a monthly stipend that is based on an average of your past earnings. Anyone under the age of 65 who is legitimately disabled can potentially receive SSDI benefits. Read more details about the Social Security Disability Insurance program here.

How is Social Security Disability Insurance different from private disability insurance?

There are two big ways that private disability insurance and SSDI differ. The biggest difference is that private insurance is much easier to qualify for. As long as you’re pretty healthy and work in a relatively safe career, you’ll be able to purchase affordable long-term disability insurance. Even if you’re not healthy or you work in a dangerous job, you can often still get private insurance (although it may cost more).

The other big difference is that you don’t need to be totally disabled in order to collect from a private disability insurance policy. If you have an "own occupation" rider — a common feature in disability policies — the insurance company will pay a benefit as long as you cannot work in your primary occupation. If you were a lawyer, for example, and a disability prevented you from practicing law but did not prevent you from teaching part-time, your insurance company would still pay your monthly benefit.

There are some smaller differences as well, specifically relating to how SSDI benefits and private benefits are taxed and how they affect your social security benefits. The rules are different in every state and also change depending on what type of private insurance policy you have.

Can I receive both SSDI benefits and benefits from my private insurance?

Yes. In most cases, nothing is stopping you from collecting both SSDI benefits and private benefits.

If you have a Social Benefits Offset rider on your policy, however, the benefit amount of your private policy will be reduced by the amount you receive from the federal government. People typically choose a Social Benefits Offset rider in order to reduce the cost of a private insurance policy.

Typically, we encourage people to purchase a private long-term disability insurance policy. Because acceptance rates for the SSDI program are so low and the appeals process can take over a year, we believe it’s best not to rely on it to protect your income and your family.

Image: Ryan Polei