Do you have a serious medical condition that makes it impossible for you to work? Or do you expect your condition may make it hard to work in the future? Are you worried about how you will pay your bills if you cannot work? You may find financial help through a disability insurance policy that pays covered individuals who can no longer work, due to a disability or illness.
Since its inception, disability insurance has evolved. Therefore, if you think you will soon be unable to work, or you recently had to leave work due to your health, educate yourself about claims, benefits, restrictions, and more.
When you know the facts about disability insurance, you’re in the best possible position to get the coverage that is right for you. Getting the right disability insurance won’t happen overnight, but with the right knowledge, you can avoid costly mistakes and pitfalls.
Benefits of disability insurance.
Before deciding if you should seek coverage, you should understand the potential benefits a policy can provide.
According to AllState, disability insurance usually covers 45% to 65% of a worker’s income before taxes. Clearly, these payments can make it significantly easier for you to pay your bills and avoid financial disasters like foreclosures or crippling debt.
Different plans pay different amounts, although payments are always based on your recent income.
Clearly, payments can help with your mandatory bills like rent/mortgages, groceries, and gas. And if you are the sole breadwinner for your household, disability insurance payments can save you from financial ruin.
Help for self-employed workers and independent contractors.
If you are self-employed and/or an independent contractor, you generally won’t have a company sponsored disability insurance plan.
However, if eligible, you may be able to receive benefits from disability insurance. Depending on the type of disability insurance you get, you could either receive salary payments or coverage for business expenses.
Long-term vs. short-term disability insurance.
Not all disability insurance is created equally or meets the needs of every person who needs coverage. If you expect to recover relatively quickly, a short-term plan may serve you well. However, if you expect to be ill or disabled for an extended period of time, long-term coverage is likely your best option.
Long-term disability insurance.
In a nutshell, long-term disability insurance is often best for people who have suffered debilitating accidents or serious health problems. In many cases, these conditions will impact them for the rest of their lives, or at least for the foreseeable future.
State Farm explains that with long-term disability insurance, people with coverage can receive anywhere from $500 to $20,000 per month. The specific amount varies per person and will largely be determined by the provider and the insured’s job and salary.
Short-term disability insurance.
Unlike its long-term counterpart, short-term disability insurance often provides coverage that ranges from one to three years. Insured people can receive anywhere from $300 to $3,000 per month, depending on the provider, along with the job and salary of the individual.
What types of disability insurance could you get?
Not everyone who wants disability insurance will necessarily qualify for it. There are three ways to get disability insurance payments: through the Social Security Administration, through your employer, or through private companies. Or you may receive payments from a combination of sources.
Could you qualify for disability insurance?
Your chances for qualifying vary greatly depending on what kind of coverage you seek, what type of medical condition you have, and where you work (or worked).
If you have disability insurance through your employer, you should qualify for coverage if you meet your plan’s criteria. Importantly, employer-sponsored long-term disability policies have very specific eligibility requirements.
Speak to your human resources representative or look up your coverage on your employer’s benefits webpage.
Importantly, if you currently have a disability or illness, you may not qualify for a plan through a private insurer since some rule out people with pre-existing conditions. The qualifications needed for coverage vary among insurers, so you’ll have to shop around. To start your search for private insurers, you can refer to Forbes’ list of Best Disability Insurance Companies Of 2023.
Social Security Disability Insurance.
Fortunately, if you currently have a disability or illness, you may qualify for Social Security Disability Insurance (SSDI). Importantly, you must have worked in jobs covered by Social Security and have a qualifying disability.
What medical conditions does SSDI cover?
The SSDI website has a list of approved medical conditions for adults and children. Most of the conditions included on their lists are permanent or expected to result in death, or the condition includes a specific statement of duration. For all other listings, your evidence must show that your impairment has lasted or is expected to last for a continuous period of at least 12 months.
Here are a few examples of conditions on the SSDI list:
- Musculoskeletal impairments.
- Neurological and mental disorders.
- Immune system disorders.
- Cardiovascular system impairments.
- Problems with speech and special senses.
Importantly, SSDI only pays for total disability. No benefits are payable for partial disability or for short-term disability.
They consider you to have a qualifying disability if all the following are true:
- You cannot do work and engage in substantial gainful activity (SGA) because of your medical condition.
- You cannot do work you previously did or you cannot adjust to other work because of your medical condition.
- Your condition has lasted or is expected to last for at least 1 year or to result in death.
In addition to meeting their definition of disability, you must have worked long enough — and recently enough — under Social Security to qualify for disability benefits.
Do you meet the work criteria?
Social Security work credits are based on your total yearly wages or self-employment income. You can earn up to 4 work credits each year. SSDI determines your eligibility based on the number of work credits you have earned and your age when your disability began. Generally, you need 40 total credits, 20 of which you earned in the most recent 10 years, ending with the year your disability began. However, younger works may qualify with fewer credits.
Importantly, if you qualify now, but you stop working under Social Security, you may not continue to meet the disability work requirement in the future.
I realize it’s a bit confusing! For more information on whether your work history may qualify, refer to How You Earn Credits.
How SSDI determines if you qualify for benefits.
They use a step-by-step process involving the following questions to determine if you have a qualifying disability:
1. Are you working?
They usually use earnings guidelines to evaluate whether your work activity is substantial gainful activity (SGA).
If your work activity (or lack thereof) qualifies you, they send your application to the Disability Determination Services (DDS) office who determines if your medical condition qualifies, using the questions below.
2. Is your condition “severe”?
Your condition must significantly limit your ability to do basic work-related activities, such as lifting, standing, walking, sitting, or remembering – for at least 12 months.
3. Is your condition found in the list of disabling conditions?
If your condition is not on their list of approved conditions, they decide if your condition is severe enough to qualify you. They have two initiatives to expedite the process:
- Compassionate Allowances: They allow some applicants to qualify as soon as the diagnosis is confirmed, including for acute leukemia, Lou Gehrig’s disease (ALS), and pancreatic cancer.
- Quick Disability Determinations: They use computer screening to identify cases with a high probability of allowance.
4. Can you do the work you did previously?
They decide if your medical impairment(s) prevents you from performing any of your past work. If it doesn’t, they will decide you don’t have a qualifying disability.
5. Can you do any other type of work?
If you can’t do the work you did in the past, they look to see if there is other work you could do despite your medical impairment(s). To make this determination, they consider your medical conditions, age, education, past work experience, and any transferable skills you may have.
What should you consider when looking for disability insurance?
Where you choose to get your disability insurance makes a huge difference. It will significantly impact the quality and longevity of your insurance, including whether or not your plan fully meets your needs.
Like other details that tie into disability insurance coverage, the timeframe for collection can vary, depending on your provider. In some cases, insurers allow you to begin collecting coverage within one month after you’ve filed your disability claim.
However, some insurers require a much longer waiting period. Clearly, the mandated time period before collection makes a significant difference. Too long of a wait can defeat the purpose of disability insurance to begin with.
Watch out for scammers when applying for disability insurance!
In recent years, the Federal Trade Commission has drawn attention to scammers taking advantage of people looking for disability insurance.
Oftentimes, these scammers target people by contacting them and offering assistance with the process of applying for disability insurance. To stay safe, consider the following red flags:
- Unsolicited callers requesting bank account numbers and/or your Social Security number.
- Unsolicited callers telling you to use a prepaid debit card to send, receive, or wire funds.
- Unexplained or strange changes to your financial statements for already-existing disability coverage.
Scammers often use disability insurance as a wat to commit identity theft and other forms of fraud. Chances are, if something seems strange or out of the ordinary, it probably is.
Importantly, neither the Social Security Administration nor legitimate insurance companies will call you out of the blue and ask you to share sensitive information in order to get insurance coverage.
How long will it take for approval and payments to start?
Every policy has its own timeline, and they can vary quite a bit, depending on the policy you get. Therefore, file as soon as you can to minimize the wait for your first payment.
How long does it take for an employer sponsored plan?
If you have disability insurance through your employer, you may have to wait 3 – 6 months before long-term disability benefits begin. However, your company’s short-term disability payments (through sick leave or sickness and accident insurance) could start immediately after you stop working.
How long does it take for private insurers?
If you get a new policy through a private insurer, they will not make any payments until the “elimination period” is over. The elimination period is the amount of time you must be disabled before they will pay you. Although the elimination period can range from 30 days to 2 years, 90 days is the most common.
An important reminder – your pre-existing condition may not qualify, so make sure you check the requirements and guidelines before moving forward.
How long does it take for SSDI approval and payments?
If you file a claim with the SSDI, the processing time alone takes 30 to 90 days. And it generally takes 5-months before you receive your first payment. If you qualify, you will receive your first payment the sixth full month after the date they determine marks the beginning of your disability.
Importantly, they may retroactively pay you disability benefits for up to 12 months prior to your application if they determine you had a disability during that time and you meet all their other requirements.
SSDI benefits usually continue until you can work again on a regular basis. Additionally, they have work incentives that provide continued benefits and health care coverage to help you make the transition back to work.
Lastly, if you are still receiving SSDI benefits when you reach full retirement age, your disability benefits automatically convert to retirement benefits, but the amount remains the same.
You’ll likely have to adjust your spending.
Disability insurance can provide you with a lifeline if your life has been uprooted because of injuries or health complications. However, insurance payments will not fully replace your prior income, likely requiring changes to your budget and lifestyle.
Thankfully, the following tips can help you create a budget that works for you during this time.
Put your “needs” over your “wants”.
Living on a fixed income isn’t easy. And a limited income means you must first pay for your “needs” – such as your rent or mortgage, utilities, groceries, medications and other essentials – before you even think about spending money on any “wants”. If you have money left after paying for what you absolutely need, then you can consider any extras, wants, or impulse buys.
For tips on saving money on prescriptions and medical bills, read:
- How to Save Money on Prescription Medications
- Tips for Handling Medical Bills
- Can You Comparison Shop for Healthcare Services? Yes, and You Should!
Save what you can.
When receiving disability insurance payments, it may feel impossible to save money. However, it’s worth your effort to save what you can, even if it’s a few dollars each month.
Take advantage of discount coupons and apps.
If you search online, you can find coupons and apps to save you while shopping at local stores or at online retailers. You can also ask your friends what apps and coupons they use.
If you have a medical condition that makes it impossible to work, you may qualify for long-term disability payments through your employer, Social Security Disability Insurance, or through a private insurer. However, you must do your homework, and read the fine print to determine if a policy is a good fit for your needs.
I wrote this article with Justin Nabity, the founder and CEO of Physicians Thrive, now a part of Larson Financial Group where he is a Partner. Physicians Thrive is an advisory group helping physicians avoid business and legal pitfalls and build their financial education. Justin has been featured in Bankrate, MSN, Carol Roth, and Insurance News. Additionally, you can listen to an interview with him on the ROI of Why Podcast.