Although most individuals understand the risk of a premature death and what this might mean for their family’s well-being, many workers have not considered the higher risk of a long-term disability and their inability to work for an extended period of time. More to the point, workers are three and a half times more likely to be injured and need disability coverage than they are to die and need life insurance.
With that in mind, let’s take a closer look at available long-term and short-term disability insurance options to protect you and your family.
Long-Term Disability Benefits
Long-term disability benefits are offered by the Veteran’s Administration, the Social Security Administration (i.e. SSDI and SSI), through workers’ compensation programs, and by certain employers. Long-term insurance policies can also be privately purchased by individuals.
Veteran’s Disability Benefits
VA disability benefits are available to disabled veterans who are injured due to their military service. Specifically, the injury must have occurred while they were on activity duty (direct service connection), or their condition was worsened by active duty (aggravated injury connection or presumed service connection).
Like other governmental disability benefits, VA disability benefits include a monthly wage replacement payment to the veteran. Additionally, the veteran may be entitled to additional compensation for rehabilitation costs and qualify for various tax benefits.
To apply for VA disability benefits, claimants must complete VA Form 21-526 and submit it to the nearest VA office. Claim forms may be downloaded from the Department of Veterans Affairs website. Claimants may also submit disability application forms online by visiting the Veterans Online Application (VONAPP) website.
To determine eligibility for VA disability benefits, the VA Administration will review the claimant’s medical records and decide if the disability or other health condition was the result of their military service.
How much VA disability will be paid?
Unlike other governmental disability programs, which are only awarded to claimants who are considered 100% disabled and unable to work, disabled veterans may receive VA disability benefits for partial disabilities.
VA disability payments are calculated after a review of the claimant’s medical information by the Veteran Administration’s Board of Veteran Appeals (BVA). Not only does the BVA determine whether the claimant is disabled, but they will also assign a disability rating.
Disability ratings range from 10% to 100% disabled and correlate with a predetermined disability payment amount. For example, if you are determined to be 10% disabled, you would receive $123 per month. If, however, the BVA determined that you are 100% disabled, you would receive $2,673 per month.
Veterans who receive a 30% or higher disability rating may also be entitled to spousal and dependent benefits. Veterans with more severe injuries, including loss of limb, may also be entitled to additional monthly benefits.
Who does not qualify for VA disability benefits?
Not all injured veterans will qualify for VA benefits. In fact, injuries that may disqualify a veteran include those obtained while engaging in misconduct, desertion, duty avoidance or while imprisoned.
Social Security Disability Insurance (SSDI)
The Social Security Administration also administers two long-term disability benefits plans: Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI).
To qualify for Social Security Disability Insurance, claimants must meet the requirements outlined by the SSA. Specifically, they must have a determinable physical or mental impairment, which does not allow them to work or perform substantial gainful activity for at least 12 continuous months. In 2016, substantial gainful activity is defined as earning more than $1,130 per month.
Claimants must also have worked and accumulated sufficient work credits to be considered insured for SSDI benefits. Claimants who are not insured will not qualify for SSDI benefits, regardless of the severity of their health condition.
Claimants may apply for SSDI benefits either in person, at a local SSA field office, by phone by contacting the SSA at 1-800-772-1213, or online.
After claimants have submitted their disability application, they can review the status online. Information provided by the SSA includes the date on which the application was received, whether or not the SSA needs more information to process the claim, whether processing has been completed, and the status of the claim. Claimants who cannot verify their application online can also contact the SSA at 1-800-772-1213 or visit their local SSA field office.
What happens if your SSDI application is approved?
If the SSDI application is approved, the claimant will be notified via mail. Approval notifications will include the disability payment amount and the estimated date of payment. If a claimant’s disability payments are denied, the disability notification will include information about the SSDI denial and information about whether the denial was a medical denial or a non-medical denial.
If a claimant receives a medical denial and decides to appeal the denial, they must submit an Appeal Request and Appeal Disability Report online. Non-medical denials, however, must be appealed by contacting the SSA field office.
Supplemental Security Income (SSI)
The second wage replacement program administered by the SSA is Supplemental Security Income. SSI is provided to claimants who are aged (65 years or older), blind or disabled, and who are unable to work for at least 12 continuous months.
To qualify for SSI, applicants must have a medically determinable impairment that is evidenced by medical documentation. SSI applicants do not have to have worked, paid taxes or earned work credits to qualify, but they must have limited income and resources.
Income can include wages, Social Security benefits and pensions. It can also include in-kind support (food and shelter) provided by another person, including a spouse or parent. Resources can include real estate, cash, stocks, bonds and bank account balances. Although there are some exemptions (i.e. primary residence, one car, burial plots), claimants will not qualify for SSI benefits if they have more than $2,000 in resources (or $3,000 in resources for a couple).
Claimants may file for SSI benefits online, although the full application cannot be completed online. Just like SSDI benefits, claimants will have to provide medical information to the SSA to substantiate their disability claim.
SSDI vs. SSI Payments: How much will be paid?
Payments for SSDI benefits are based on the amount of income paid by a claimant in Social Security taxes, referred to as covered earnings. SSDI claimants earn between $700 and $1,700 per month with an average monthly payment in 2016 of $1,166.
SSI is not based on a claimant’s covered earnings, but on an amount called the Federal Benefit Rate (FBR). According to the SSA, the monthly maximum federal amounts for 2016 are $733 for an eligible individual and $1,100 for an eligible individual with an eligible spouse. Certain states also add a state supplemental payment to the FBR, allowing some SSI claimants (in certain states) to receive more than the FBR.
SSI payments, however, can be reduced by a certain countable income earned by an SSI recipient. Payment amounts can also be further reduced by certain monetary and non-monetary support. Talk to the SSA if you have questions about your SSI payment amount.
Privately Purchased & Employer-Provided Long-Term Disability Benefits
Finally, injured workers may also receive long-term disability coverage through an employer disability plan, or they may purchase their own private long-term disability plan from companies such as Guardian, MetLife, The Standard, Mass Mutual or Northwestern Mutual.
Disabled workers who have purchased or who are provided with long-term disability insurance will receive long-term benefits as a percentage of their salary. Long-term disability benefits are generally paid after a short-term policy expires, and may replace up to 50–60% of the worker’s salary.
Benefit payment schedules and the length of the policy will vary by the policy purchased. For example, some policies may pay out for a specific number of years, while others will pay out until the employee reaches 65 years of age. Payment amounts can also vary, but are generally based on the worker’s pre-disability wages and the amount of wages that they may still be able to generate by working part time.
Whether long-term disability insurance is provided through an employer or purchased privately, it can be a crucial component to helping workers protect themselves during an unexpected disability.
Short-Term Disability Insurance Options
The Social Security Administration does not provide any type of short-term disability benefits. For example, SSI and SSDI are not provided to claimants whose condition is not expected to last for at least one year.
This does not mean, however, that there aren't several short-term disability options. Specifically, short-term disability benefits may be available through workers’ compensation, state disability programs, short-term disability insurance provided by an employer, or short-term disability policies purchased by an individual.
Workers' Compensation Benefits
Workers' compensation is available for many workers who are injured on the job while performing their normal job duties. Workers' compensation benefits can include medical care paid by the employer to help a worker recover from their injury or illness. It can also include temporary disability benefits, permanent disability benefits, supplemental job displacement benefits, and death benefits paid to surviving spouses and dependent children.
Payouts for workers' compensation injuries can vary by state, by injury type and by employer. If you have questions about your right to workers’ compensation benefits following a work-related injury, you need to contact your employer’s Human Resources department.
Privately Purchased and Employee-Supplied Short-Term Disability Insurance Plans
Short-term disability benefits may be provided by an employer, or they may be purchased privately by an individual.
If an employee receives short-term disability benefits from their employer, or if they decide to purchase coverage on their own, the specific terms of the policy are dictated by the specific plan provided by the employer or purchased by the employee. Common plan provisions, which can vary by plan, include the following:
- The number of days that must pass before coverage begins
- The length of the disability coverage
- Whether employees must pay for the benefit
- The length of time an employee must work prior to receiving coverage
- Whether the employee must be a full-time employee to qualify
Generally, however, both privately purchased or employer-provided short-term benefits will pay a percentage of the worker’s weekly gross income for a certain amount of time if the worker becomes disabled or injured, and is unable to perform their job. For example, many plans will pay out between 40–60% of the worker’s weekly salary for nine to 52 weeks. Many disability programs will also allow a maximum of 52 weeks of coverage.
Note: some states require employers to provide short-term disability benefits and specify the number of weeks that must be provided. More information about these states' programs is discussed below.
State’s Disability Programs
Currently five states (California, New Jersey, New York, Rhode Island and Hawaii) and Puerto Rico have some type of temporary disability benefits laws that require payroll deductions to subsidize state wage replacement insurance programs for workers who suffer a non-work related injury. The worker's condition must prevent them from performing their normal job requirements, and must be verified by a qualified doctor.
Qualifying for a State Disability Program
Short-term disability programs for each state vary but, in general, injured or sick workers must have been employed for a specified period of time and paid a specified amount in taxes to qualify.
For example, to qualify for temporary disability insurance in Hawaii, a worker must have worked at least 14 weeks, been paid for 20 hours or more, and earned at least $400 in the 52 weeks prior to the first date of disability.
How much will you be paid?
State laws for calculating benefits payment can vary. For example, in the state of New Jersey, a claimant’s weekly benefit amount is based on the claimant’s average weekly wage. Specifically, the payment amount will be two-thirds of the worker’s average weekly rate, up to the maximum allowable amount. That rate is currently $615.
Other states may have different state payment rates. If you have been injured or disabled in a state that has mandatory short-term disability benefits, review your state’s laws for more specific information about your potential short-term disability benefits.
Federal, State and Local Tax Breaks for the Disabled
Claimants who have a physical or mental impairment—and who are currently receiving a disability benefit from the SSA, the Veterans Administration, workers’ compensation or a state’s disability plan—need to discuss their tax obligations and benefits with a certified tax accountant.
Disabled claimants may be allowed to claim a higher standard deduction on their tax return, claim impairment-related work expenses, reduce or eliminate taxable income, deduct certain medical expenses, claim an earned income credit, or receive a child or a dependent care credit. Additionally, disabled claimants who are determined totally and permanently disabled may also qualify to have certain federal student loans discharged.
On the state level, claimants who receive temporary disability benefits from their state plan must report their benefits on their W-2 form but, in some cases, they might not be subject to state income tax.
Many individuals purchase life insurance and prepare for death. Fewer workers, however, consider what will happen to them if they become disabled and are unable to work. The good news is that with a little planning and research, there are steps that you can take to protect yourself and your family from disability.