When Social Security Won’t Help

Relying on Social Security Disability Insurance (SSDI) to cover you if you become disabled could mean financial ruin. Here’s why.

You must meet all the following criteria to receive SSDI benefits:

• You earn more than $1,090 a month.
• Your condition must be so severe that it interferes with your work.
• Your disability must be included on the Social Security Administration’s (SSA’s) list of medical conditions so severe that they mean that you are disabled.
• If your condition is not a part of SSA’s list and is not as severe, then your ability to do the work you did previously will determine if you can be considered disabled.
• If the work you did previously is not possible any longer, the Social Security Administration will check your ability to do a job that’s less demanding, whether mentally, physically or both. It will also consider are your age, education, experience and transferable skills.

Why You Need Disability Income Insurance

Given the difficulty of obtaining SSDI benefits, what can you do to protect your finances and your family’s stability?

An estimated 25 percent of people currently 20 years old will experience at least a temporary disability before they reach age 67. Investing in disability income insurance protects your most valuable asset: your ability to earn a living. Do you need it? Consider the following factors:

Dependence

If you or others depend on your income, then you need disability income insurance. Unlike SSDI, disability income insurance will pay benefits if you are expected to be out of work for less than a year. Your policy’s elimination period determines how long you must be disabled before your benefits begin. If you have some savings you could use or another source of income, such as a spouse’s job, you might opt for a longer elimination period. That will reduce your premiums.

Expenses

If you have disability income insurance, your benefits will help you pay the essential expenses — food, school tuition, utilities, and car and home payments — while you cannot work. This helps you preserve your retirement and other savings.

Cost

Many people overestimate the cost of disability income insurance. You can buy a $1,000 monthly benefit for as low as $25 per month, depending on your age, occupation and health.

Disability income insurance costs less when you are young, and you are less likely to be disqualified for health reasons. If you buy a noncancellable and guaranteed renewable policy, your benefits and premiums will not change until you reach age 65 or the age specified in the policy. Regardless of your health status, the insurer cannot raise your premiums or lower or cancel your benefits.

A bit less secure, but also a bit less expensive, is guaranteed renewable coverage. If you buy a guaranteed renewable policy, the insurer guarantees to renew your coverage regardless of your health status at the time of renewal. It can change your premiums, but only if they change them for all policyholders within your rating class, whether that be your state, policy year or occupational class.

Purchasing disability insurance is a long-term commitment. It helps keep your family safe if the worst should happen. If you do become disabled, you obviously hope to receive benefits for as long as you need them. Therefore, when you do buy coverage, buy it from a company that has experience, financial strength and a good reputation for claims payment. That way, you can be reasonably sure you will receive the benefits you need, when you most need them.

Employer-Sponsored Disability Income Insurance

Often companies offer their employees a basic disability income insurance plan. If you have employer-sponsored coverage, look carefully at the benefits provided. Group benefits may be sufficient for some people, but not for all. Most group policies place a fairly low cap on monthly benefits, so they will only replace a small portion of a high earner’s monthly income. They also might not take into account commissions and bonuses when calculating monthly income, so check your plan’s wording.

You’ll also want to check a plan’s definition of “occupation.” Many group policies will pay benefits only if you’re unable to work in any occupation for which you are reasonably qualified by experience and education. A skilled professional might find these terms inadequate.

You can always buy individual coverage to supplement an employer’s plan.