long-term disability insurance

What is Social Security Disability Insurance?

Est. 5 min read

If you can’t work because of a disability, how are you going to get money into your household? One option is the federal government — their Social Security Disability Insurance program is designed for this exact situation. But what exactly does the government provide, and how easy is it to apply and qualify for benefits?

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.

SSDI is not the same as private disability insurance — either long-term disability insurance or short-term — and the standards one has to meet to qualify for benefits are much stricter for SSDI than they are for private insurers. Unlike private insurance policies with “own occupation” riders, SSDI will not cover you if you’re able to perform work in another field, i.e. a doctor who can do part-time teaching. Most private disability insurance policies have some form of own occupation rider, at least for

SSDI is also not the same as Supplemental Security Income (SSI), which provides disability stipends to low-income citizens.

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How do I qualify for Social Security Disability Insurance?

There are four qualifications that you need to meet if you want to collect SSDI benefits:

  1. You must have a physical or mental condition that prevents you from engaging in any “substantial gainful activity.”
  2. Said condition must be expected to last at least twelve months or result in death.
  3. You are under the age of 65.
  4. You have accumulated twenty social security credits in the last ten years prior to the onset of your disability (if you’re over the age of 42, you need an additional credit for every year your age exceeds 42).

What does it mean to be prevented from engaging in a substantial gainful activity (a.k.a. having a disability)? According to the Social Security Administration (SSA), it means that you can’t do the work that you were doing before the onset of your disability. Additionally, the SSA needs to decide that you cannot adjust to another job. The SSA’s definition of disability also includes the second qualification from the above list — your condition either needs to have lasted a full year or be expected to last a full year or result in death. Private long-term disability insurance, on the other hand, usually has a shorter six-month requirement before it starts paying benefits.

Another important thing to keep in mind is your number of social security credits. You earn social security credits when you pay social security taxes out of your paycheck. Currently, you can earn a maximum of four social security credits per year. As of 2016, you need to earn at least $5,040 in a year from either a W-2 employer or 1099 self-employment to get the maximum amount of credits. The number of social security credits you need to collect disability depends on your age; more information, visit the Social Security Administration website.

How do I apply for SSDI?

You can pretty much do the whole process online. Start your application at the Disability section of the Social Security website. After filling out the online forms, you may have to mail documents or physical bring documents to the nearest Social Security office. If you don’t want to apply online, you can go to your local Social Security office and fill out an application in person.

Unlike private disability insurance, which you apply and pay for before the onset of your disability, SSDI must be applied for after your disability is diagnosed and documented.

How long will it take to hear back?

Currently, the Social Security Administration estimates that the initial application can take 90 to 120 days to process. However, if you need to appeal the initial consideration, you can expect the application time to take a year or more. Meanwhile, during this process, you’ll need to provide your own income either through savings or a private insurance policy.

How likely am I to receive SSDI benefits?

Most people who apply for it do not get SSDI, at least not on the first try. In 2012, the Congressional Budget Office published an infographic stating that 61% of applicants are denied at the first application level. The majority of those denied end up appealing, but the appeals process is long and not guaranteed. Many applicants end up paying for a lawyer to help them through the process, creating additional costs. By the end of the appeals process, it’s estimated that 56% of applicants are accepted into the program (including the 39% who are accepted at the first stage).

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If my application is accepted, how much money will I get every month?

Like all social security benefits, SSDI benefits are based on your past earnings. However, it’s difficult to predict how much money you’ll receive from SSDI. It’s likely to be less than 60% of your pre-tax income before the onset of your disability, which is what the best private disability insurance policies provide. The average monthly benefit in 2012 was $1,111, with the highest paid benefit being almost $2,500.

Will the Social Security Disability Insurance program run out of money?

In 2010, the Congressional Budget Office warned that the SSDI program was not financially sustainable. Last August, The Atlantic wrote a huge article about the internal reform necessary in order to save the SSDI program. In October, Obama and Congress kicked the can down the road by temporarily reallocating “Social Security payroll tax revenue from the trust fund for retired workers to the trust fund that pays disability benefits,” according to Rutgers scholar Dory Devlin. It’s not a solution — at the end of the day, SSDI still can’t pay for itself using the tax designed to pay for it, plus they’re creating a potential crisis for the fund that pays for retiree benefits.

Image: 401(k) 2012

Published on April 12, 2016

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Adam Cecil writes for PolicyGenius, a digital insurance brokerage trying to make sense of insurance for consumers. You can read more of his writing on his site.
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