There’s a misconception among Americans when it comes to disability insurance: The government provides Social Security disability insurance (SSDI), so who needs to buy their own private disability insurance policy? Almost 9 million people are on SSDI, so the safety net is there. But SSDI can be difficult to qualify for and may not meet your needs. There are also strains on the program that leave its future up in the air. That’s why private disability insurance more important than ever.
There are two main parts to getting a SSDI claim: Applying for it and qualifying for it. Both have their challenges.
According to disability assistance company Allsup, in 2011, the average wait time for claimants to get a hearing to determine their eligibility was 360 days. In the summer of 2017 it was 583 days, and the estimated time for September was 605 days. In less than six years, the time just to see if you’d qualify for benefits nearly doubled. Compare that to a private long-term disability policy, which can go in force in a few weeks and has an average elimination period — the time before the benefits go into effect — of 90 days after filing a claim. The minimum elimination period for SSDI is 180 days).
And the people who do finally get through that waiting time? Only 39% get approved, and only 33% get approved the first time they apply. If you think SSDI is still a winner because of the cost of a private disability insurance policy, consider this: Many people who apply for SSDI end up hiring lawyers to help them because they get initially denied and have to fight for their benefit.
What makes qualifying for SSDI so difficult? The definition of disability is notoriously strict. Private disability insurance policies often have an own-occupation definition, meaning you still receive benefits if you can’t do all of the duties of your current job even if you’re able to do other work. With SSDI, you only qualify for a claim if you cannot perform any gainful activity. SSDI is more stringent on what counts as being disabled — and, therefore, when you qualify for a claim.
If you were to become disabled and unable to work, how much money would you need to live on?
Most people would say, “As much as I’m taking home right now.” That’s why disability insurance covers up to 60% of your gross pay (and, if you’re paying for you own policy, the benefit is tax-free). The cost of your policy is determined in part by the benefit amount, but you know you have the option of getting enough to cover your needs.
SSDI pays out considerably less. The average monthly SSDI payment is $1,171. The maximum amount, assuming you’ve been maxing out your Social Security contributions, is $2,687. Your SSDI payment may also be taxed, especially if you have a spouse who still earns money.
For many people, SSDI doesn’t cover their financial needs. It also means that, even if you make it through the onerous process of applying and qualifying, SSDI likely won’t be enough to make ends meet.
These issues have compounded to make SSDI an untenable system. ABC News recently reported that the SSDI waiting backlog topped 1 million people. However, this massive backlog may also be keeping the underfunded program alive, for a depressing reason: People are dying before they receive their benefit. In 2016, 7,400 people died on the waitlist.
Much of this has to do with an aging population. According to the Center on Budget and Policy Priorities, people are twice as likely to collect SSDI when they’re 50 years old than when they’re 40 — and twice as likely again to collect when they’re 60 versus 50. Add in the fact that the 50-64 age group has grown more rapidly than the population as a whole, and it’s obvious that SSDI is a system that’s simultaneously collapsing under and being saved by its own shortcomings.
What does that mean for the future of SSDI? It’s hard to say. The budget proposed by the Trump Administration in late May clearly cuts SSDI (despite the claims that it wouldn’t). So who knows if the program has a future. It’s all the more reason to not be reliant on it and to buy your own disability insurance policy.
Relying on SSDI to protect you from risks is a big risk in itself. A private long-term disability insurance policy is easier to get approved for, provides a higher benefit that better meets your needs and lets you tailor your policy so you know it’s right for you.
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