For over 48.9 million people, dealing with a disability, whether it be a physical or mental impairment, is a part of their everyday life. While this can pose a variety of limitations, one thing it definitely impacts is your financial picture.
Many people might think that social security should be their first go-to for financial assistance in the event they were disabled. But Social Security is very limited in the support it provides.
To qualify for benefits, you must first meet the definition of being disabled, which means your condition limits your ability to do basic and necessary work. This includes anything from lifting, standing, walking, sitting to even things affecting your memory, for at least 12 months. That said, your medical condition, age, education, past work experience, and any other transferable skills you have reconsidered. If you cannot do work you did previously but can do other work; this may disqualify you.
And finally, you are only considered to be insurable if you or certain members of your family are insured. Or, receiving your social security disability benefit means you’ve worked long enough to pay social security taxes. Even then, the amount you would receive is limited and is unlikely to replace the income you once received from your day job.
And, if you do decide to try and earn some money to help make ends meet, you cannot exceed $1,220 a month in earnings, to continue to receive benefits. So, with all of these limitations, what are the alternatives?
Often your employer will provide disability benefits, but you must know exactly what benefits you have in order to be adequately protected. In many cases, owning individual coverage in addition to what is provided through your employer may be your best bet.
Let’s break this down how to tell if you are truly protected.
The biggest thing to pay attention to when it comes to analyzing your disability coverage is the definition of disability. Just like social security, employer plans will also have a definition of disability.
This definition is critical.
Many will state that in order to collect benefits, you have to be totally and permanently disabled. Meaning, that if you can work anywhere in the U.S. economy, you will not qualify for benefits.
The ideal definition and one that is typically not found in employer-sponsored plans are if you are unable to work in the job for which you are trained and educated for, due to a disability, you will receive benefits.
The second criteria to look for is the length of time benefits would be paid. Some plans will only pay benefits for 2-5 years.
This means that you either:
need to go back to work after that time or
need to go through the application process again to receive Social Security benefits, if you’re still unable to do your job.
Some plans will pay benefits to age 65 or even lifetime, but those are typically found in individual types of insurance plans rather than corporate ones.
There are still a few more things to note.
How long do you have to be disabled before you can qualify for disability?
Plans could range in time between 90-180 days. This can be a real hit to your wallet if you do not have money to survive during that waiting period.
There also may be additional costs associated with your disability that can hit your wallet particularly hard. Going into debt to get your through this waiting period while also facing a reduction in income can have long-lasting effects on your financial future. This is why we stress the importance of always having your liberty fund secured with six months of living expenses.
Finally, how much money you will ultimately receive is typically determined by a percentage of income. For example, you may receive 60% of your base pay, which may not include contributions to retirement plans, bonuses, or commissions. And in many cases, since benefits are provided for you, the benefit would be taxable if received. Therefore, you need to ask yourself, could I live on 60% of my base pay? And, what does that mean if I also have to pay tax on that money?
If the answer is no, then you should consider individual supplemental coverage to make up for the gap. But, know that you will never be able to replace 100% of your income. Otherwise, there would be no incentive to work, so the target amount of income replacement should be in the neighborhood of 75-80%. Supplemental insurance can also help cover the waiting period to receive benefits, along with any time shortage you may face.
Ideally, acquiring individual disability insurance before you enroll in your employer’s plans would get you closer to that 75-80% income replacement mark. If you haven’t enrolled yet or are looking at changing jobs, consider this before you choose.
When evaluating individual coverage, pay attention to the items above and also check into the implications of having a partial disability. Could you receive benefits if you can work but only part-time?
If you are disabled and are looking for ways to generate income, look for work that doesn’t interfere with any benefits you receive. Perhaps you can’t work in the job you had, but maybe you could teach others instead? Or is there work from home options, which would bring in much-needed income but give you the flexibility you need?
Bottom line, getting individual coverage while you are young and healthy is critical. Once you have health issues, getting the coverage you need will be much harder and more costly. Make sure to read the fine print of any benefits you receive through your employer and ask questions. The more you know ahead of time, the better prepared you can be.
Meredith is a Philadelphia native with a bachelor’s degree in Integrated Marketing Communications from Duquesne University and has worked in digital marketing for over seven years. She’s passionate about writing to women to help them feel more confident in their financial lives.