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The Difference Between Social Security and Private Long-Term Disability Insurance

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There are many myths floating around about disability insurance - the most common is that there isn't much of a difference between SSDI and private long-term disability insurance. Often, Americans will choose to skip the latter because they think the former will provide for them if they become disabled.

In this podcast episode, we team up with Gary Pozsik of Health, Wealth, and Happiness and discuss the key differences between Social Security Disability Insurance and private long-term disability insurance.

Show highlights

What is Social Security Disability Insurance?

Social Security Disability Insurance pays monthly benefits to you if you become disabled before you reach retirement age and cannot work.

Eligibility requirements

In order to be eligible for SSDI, you need a certain amount of "work credits" that are earned each year you work in a job where you paid FICA taxes. How many work credits you need depends on how you are when you become disabled.

To qualify for SSDI benefits, you must meet the definition if disability under the Social Security Act. Generally, you are considered disabled if you're unable to work due to a severe condition that has lasted or is expected to last at least one year.

How much you'll get

Social Security disability benefits are more modest than many people realize, as they are meant to help you meet basic living needs. SSDI benefits are not meant to replace all of your lost income.

At the beginning of 2016, Social Security paid an average monthly disability benefit of $1,166. Unfortunately, that is barely enough to keep a beneficiary above the 2015 poverty level of $11,770 annually.

How long you'll have to wait

Processing your application for benefits can take an average of three to five months, according to the Social Security Administration.

Chances of denial

According to NOLO, 70 percent of initial SSDI applications are rejected. If you decide to appeal the denial, remember that the process can take a long time - even three or more years, if you must have your case heard by the administrative judge.

Individual or group long-term disability insurance

Long-term disability insurance, like SSDI, can provide income replacement if you suffer a disabling illness or injury and are unable to work. Long-term disability insurance can be purchased through a private insurance company or through an employer-sponsored plan.

How much you'll get

Long term disability insurance policies typically pay 40 to 60 percent of your pre-disability gross salary. They are designed to replace what you normally receive from a post-tax paycheck, and unlike SSDI, are meant to replace enough of your income to provide a livable benefit.

LTD benefits are paid for a specific period of years or until age 65. Every policy is different, so pay attention to the fine print.

How long you'll wait

There is an elimination (waiting) period following the onset of disability to qualify for benefits. While it varies with each policy, the average elimination period is 180 days.

Insurance companies may take up to 105 days to resolve a disability claim at the initial claims stage, under limited and justifiable circumstances, provided that appropriate notice is provided to the claimant.

Chances of denial

Although private disability insurance benefits are easier to qualify for than SSDI benefits, the chances of being denied are still high. The definition of disability will vary from policy to policy, so it's important to pay attention to specific policy language.



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