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Did you know? Before hitting the retirement age, nearly a quarter of working Folks in the US would be disabled.
When everything is going smooth, an illness, a road accident or a workplace injury may turn an individual’s life upside down. Things may go out of his control. He would lose his earnings and be on the breadline.
Only 48% of adults in the United States have enough savings made to meet three months’ worth of living costs if they lose their job. Disability benefits come to the rescue in such phases of life and offer financial support to individuals when they are unable to work.
According to the Americans with Disabilities Act (ADA) of 1990, the legal definition of “disability” is as follows
- A physical or mental impairment that substantially limits one or more major life activities of such an individual.
- A record of such an impairment; or
- Being regarded as having such an impairment
In any disability benefits program, the eligibility for benefits is related to the ability of the individual to perform the duties of his job or activities of daily living.
Causes of disability
The reasons for disability may be any illness that makes the individual lose his earnings and monthly wages. In addition to the lost wages, the individual may gain financial burden to manage the treatment cost and have a quality life. The below-mentioned are some of the disabilities commonly projected for disability benefits.
- Road accidents
- Heart attack
- Back pain
- Work injuries
- Psychological disorders
- Catastrophic injuries
- Spine injuries
Disability Insurance may vary depending upon the age, working status, illness, and financial condition of the individual. Workplace injuries are mostly covered by workers’ compensation than by disability benefits. However, these benefits may cover when an employee sustains a disability due to a personal accident such as a motor vehicle crash or a fall.
There are two types of disability insurance for employees. They are
- Short-Term Disability (STD) Insurance
- Long-term Disability (LTD) Insurance
In 2018, the access of private-sector workers to short-term and long-term disability were 42% and 34% respectively.
The cost of maintaining both short- and long-term disability insurance access to all private-sector workers would be roughly 1.0 percent of total compensation cost, according to the US Bureau of Labor Statistics (BLS).
1. Short-Term Disability (STD) Insurance
A short term disability insurance offers financial support to an individual when he is unable to work for a short period due to some medical emergency. It usually replaces 40-70% of the income of an individual which would vary based on an employee’s position or the amount of time he has worked for the employer. As per the data of 2019, 40% of workers had access to short-term disability benefits.
Short-Term Disability (STD) Insurance commonly opts for pregnancies, musculoskeletal disorders, digestive disorders, hernias, mental disorders like depression and anxiety, fractures, sprains, and strains.
As the name indicates, a short term disability insurance would cover for a short period of time which may last for 2-6 months. However, in some cases, it may last for 1-2 years. The elimination period or the waiting periods would be 1-7 days from the date of illness. However, STD insurance cannot be utilized when the injury is severe and presents serious illness in the individual.
What if you sustain an injury when at work and not able to continue with your job for few months? In such situations, your workers’ compensation would compensate you for the lost wages and not necessarily the short-term disability insurance. However, the disabling illness or injury should evidently be directly work-related.
In few states like California, Hawaii, New Jersey, New York, and Rhode Island, the employer must offer short-term disability plan to the injured employee. It would be either self-funded by the employee or through an insurance provider. However, in other states, the employer might offer short-term disability plan as a benefit which is not obligatory.
Some of the short term disability insurance plans demand that the employee should have completed a minimum service period or has been employed consecutively for a certain period.
2. Long-Term Disability (LTD) Insurance
A long-term disability insurance help individuals who suffer severe injuries which may require more time to recover. It replaces around 60-80% of the lost income of the individual and may last from 1 month – one year. The elimination period or the waiting periods would be 90-180 days from the date of illness. The extent of insurance coverage may depend upon the injury sustained by the individual and his employment status. The most common reasons for long-term disability claims are musculoskeletal disorders (29%) and cancer (15%).
Long-term disability insurance (LTD) begins to support the disabled employee when the validity of the short-term disability insurance (STD) benefits end. When an employee has both the benefits simultaneously, it may switch automatically.
Long-term disability insurance covers the disabled employee for a period longer than short-term disability insurance. In some cases, it may be valid for few years and in some cases it may support the employee until he is 65 years old. However, the conditions for pay-out may depend on the individual scheme policies.
Reports suggest that 93% of the long-term disability insurance is provided by employers. If the insurance coverage offered by the employer is not enough to meet the financial crisis of the employee, he may purchase supplementary long-term disability insurance from an insurance agent. Though it is a costly affair, payments from an employee-purchased plan are usually not taxable
Federal Disability programs
There are two federal disability programs that offer financial help to disabled individuals on a long-term basis. They are
- Social Security Disability Insurance (SSDI)
- Supplemental Security Income (SSI)
These are two separate types of cash benefits both administrated by the Social Security Administration (SSA). It is estimated that at least 51 million working adults in the US lack any other disability insurance beyond the minimal coverage of social security disability benefits.
To qualify for either program, an individual must meet SSA’s definition of disability.
- The individual is unable to do a substantial gainful activity
- The disability is expected to last for at least one year or result in death of the individual
- The particular impairment is listed on Social Security’s disabling medical conditions commonly referred to as the “blue book” of approved medical conditions
For both SSDI and SSI, the applicant’s medical data would be analysed by a social security representative for the processing of the application.
Let’s now dive in to see how these federal disability programs work.
1. Social Security Disability Insurance (SSDI)
Social Security Disability Insurance (SSDI) is SSDI is funded by Social Security deductions from pay checks and serves individuals who have paid Social Security taxes during the period of employment.
SSDI does not depend upon the financial status of the applicant to determine eligibility. Instead, it analyses if the individual had worked for a certain number of years and earned a specified number of work credits before getting disabled. It would take around three to five months for SSDI benefit application to be processed. The advantage of SSDI is that it also provides benefits to the dependents of disabled workers.
To qualify for SSDI, the disability of the applicant must be expected to last for at least 12 months or to end in death. Individuals qualified for SSDI are also covered by Medicare insurance after two years on benefits. However, the coverage would not be as comprehensive as that of Medicaid. For the year 2021, the estimated average monthly Social Security Disability benefits amount for an individual is $1,277.
2. Supplemental Security Income (SSI)
Supplemental Security Income (SSI) is intended to make monthly payments to disabled individuals who have low incomes. It is not entwined with the applicant’s employment history. Supplemental Security Income was created by the Social Security Amendments of 1972 and financed by general funds of the U.S. Treasury–personal income taxes, corporate and other taxes.
SSI is also applicable to citizens who are age 65 or older, children, and blind individuals. An individual qualifying for SSI would likely also qualify for Medicaid insurance. The claims are evaluated by Social Security on a case-by-case basis.
SSI considers the income and resources of the applicant to calculate the benefit amount. Payments are made on the first day of the month. To qualify for SSI, the countable resources for an individual should not exceed $2,000. Countable resources may include stocks, bonds, or property of the applicant. Forty-six states except for Arizona, Mississippi, North Dakota, and West Virginia provide supplemental SSI payments. In 2021, the SSI disability benefits of $794 per month are paid to an individual.
3. Veterans (VA) Disability Benefits
VA disability compensation is a non-taxable monthly payment provided to veterans disabled during service. It comes under the U.S. Department of Veterans Affairs which is the second-largest federal department in the US.
Physical, as well as mental disorders, may be covered under VA disability benefits. The disability is rated in the range of 0-100% according to which, the benefit amount is provided. VA disability compensation proceeds through the Compensation and Pension examination (C&P exam) with the aid of the Disability Benefits Questionnaire (DBQ).
Veterans with disability benefits are financially supported through the Veterans Benefits Administration (VBA). Both the veterans and the dependents are offered financial support under this program.
Dealing with disability benefits could be equally stressful as managing the financial crisis of the disability. In any disability benefit plan, the applicant may encounter difficulties in proving that he is unable to function in the workplace or carry out his day-to-day activities like before. The claimants do not realize the importance of their medical records in the claiming process.
In 2018, the Social Security Administration rejected 65% of disability benefits petitions. To avoid denial, the claim should be efficiently prepared and processed with supporting medical records. An experienced attorney may help the applicant detangle the complexities of the claim. If the application is rejected, the applicant could proceed with an appeal request and collect the benefits.
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