Nobody wants to spend money if they don’t have to. One way people save is getting a cheaper version of something. Sometimes this is a good idea, or it at least makes sense. It is probably a good idea to try the more affordable cabernet, a drill from Harbor Freight instead of a DeWalt, or Old Navy Athletics instead of Lululemon. You might notice a difference, but the budget friendly option will still work well.
Other things, like safety equipment, maintenance, or health care may be poor choices for cutting costs or corners. Generally, saving on luxury items is good, but jeopardizing quality on essentials is risky.
Someone might think that long-term disability insurance is a luxury they can save on, especially because Social Security has a disability program. That is a bad choice for several reasons. Fundamentally, Social Security disability and long-term disability are different insurances with different goals, benefits, and requirements. If you need long-term disability insurance and you only have coverage for Social Security disability, you will regret your choice almost immediately.
Long-term Disability Background
People usually get Long-term disability insurance through their employee benefits. In those cases, the employer has a contract with an insurer to offer coverage for workers. The workers can access benefits, often 60% of their salaries, if a medical condition causes them to miss work for a long period of time, usually over six months.
Most policies will provide those payments if the worker’s medical condition keeps them from working and earning the wages they were making at their job that provided the benefits for up to two years. Often, at that point, the policy will continue if the worker is unable to perform other work that would pay them a certain percentage of what they made before.
Insurers usually pay benefits quickly, especially if a worker was already on short-term disability though the insurer. Benefit payments get more complicated due to things like benefit limitation conditions and other clauses in specific agreements. Though imperfect, long-term disability delivers strong income replacement in a timely manner for workers stricken with injuries or illness.
Social Security Disability Background
Social Security is the federal government’s insurance branch, giving rise to the joke that the federal government is an insurance company with a standing army. Social Security’s most popular program is the retirement benefit for workers. Social Security defines that program as “old age insurance.” After robot insurance, “old age insurance” is my favorite insurance. Worried you might become old? Let Old Age Insurance help protect you from the ravages of time.
More relevant is Social Security’s disability insurance. Social Security disability sounds like it should be a substitute for long-term disability. Social Security disability will pay benefits to workers whose medical conditions keep them from working for a year or more and who are unable to perform a significant number of jobs in the national economy. The amount of Social Security benefits depends on how much the person has paid in. To qualify, the person must have paid their FICA taxes and met minimum work standards over their career. People usually say they earned enough quarters for Social Security coverage.
Social Security disability certainly sounds like long-term disability insurance if you don’t look closely enough. You could say the same thing about rugby and football, or many of the Kardashians. Once you start to look at even basic details, you’ll see huge differences.
Social Security Disability is Different from Private Long-Term Disability Insurance
| Category | Long-term Disability | Social Security Disability |
| Processing Time | Approvals are fast, in a matter of days or weeks | Approvals are slow, measured in months and usually years. |
| Payment Amount | Based on your salary when you left work, often 60% | Based on your lifelong contributions, averages $1400/month, caps at $3500/month for an individual. |
| Approval Rate | High and you don’t usually need a lawyer | Low, approving less than 40% at first application, and you usually need a lawyer |
| Standard for Disability | Factors your income and experience | Only awards benefits if you can do basically no jobs, regardless of pay or your experience. If you can do entry level, sit-down work, you aren’t disabled unless you are “approaching advanced age.” |
| Medical Insurance | Does not provide medical insurance | 29 months after your disability begins, you may qualify for Medicare. |
If you rely on Social Security disability to replace your income, get ready to wait, likely for one – two years, with no income, while you and the attorney you had to hire fight to convince Social Security you aren’t lying or exaggerating. Then, when you get benefits, you will get your backpay, but you’ll owe taxes on it. The amount you get will be much less than what you were making.
Also, while you are waiting with no income for Social Security, you’ll also have no insurance, your family dynamics may crumble, you are at high risk for depression, and if you try to find work, Social Security will likely hold that against you.
Social Security disability is a public safety net. It provides minimum benefits to people who need it. Congress did not design Social Security disability to protect your income. Instead, Social Security disability gives you some basic protection if you have nothing else.
In that way, Social Security disability is like Social Security Old-Age Insurance (Retirement). Nobody advises anyone to rely solely on Social Security for retirement. Social Security should be just a part of your retirement unless you have no other options.
Social Security disability functions the same way. It is a part of your income-protection plan, but you need additional coverage, most often through your employee benefits. If your company offers long-term disability insurance, it is a smart idea to opt into the coverage. Preserving your household income in the case of accident, injury, or sickness goes a long way to helping your family deal with the situation.
Unlike Social Security disability, long-term disability insurance is structured for immediate assistance and a closer approximation of your income. The private benefit pays more and pays sooner.
The Best Situation
For someone who is disabled, the best scenario is to have private disability insurance that will help immediately. Then, the Social Security disability benefit will help when Social Security approves the claim. That will allow the person to have the initial protection and the long term benefit, such as Medicare. Social Security disability also plays a big role if the private disability insurance has time limitations on certain medical conditions. Some policies have a time limitation for all conditions, providing only two – five years total of benefits.
Even when your long-term disability covers less than you hoped for, it still covers you during the period when you can be applying for Social Security and moving through the process. If your long-term disability only serves as a bridge, it is important to remember what an important bridge it is.
Conclusion
When you look at the elective benefits during open enrollment, you might think that long-term disability insurance is a place to save a little bit of money. Investing a small amount to protect your income is the smart move. It can save so much more in the long run. Long-term disability insurance is the only resource you might have to help you pay your bills if you an injury or accident keeps you from working. Social Security, lawsuits, workers compensation, and even a family member finding more work all take more time and are less reliable than having long-term disability insurance lined up.
Protecting your income for you and your family takes multiple approaches including disability insurance, life insurance, Social Security, retirement, and so on. When your employer offers you long-term disability insurance, you should probably take it.
To learn more about income protection, visit RealityCheckup.info, which is part of a CDA consumer outreach program to help working adults understand the importance of having alternate sources of income for times when they cannot work due to illness, injury, or pregnancy.
