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Long-Term Disability Insurance vs Social Security Disability Insurance

Long-term Disability Insurance

A person who becomes unable to work following an accident or illness, can rely on disability insurance programs for economic support. Any disability program requires medical records review to determine the disability. Disability insurance includes long-term disability as well as social security disability benefits. These are distinct types of benefits; the former is a type of private insurance offered to employees through their employers. Long-term disability insurance (LTDI) can also be purchased from private insurers. In this type of insurance, the employer or employee has to pay a monthly premium amount to an insurance company or payer. If the employee becomes disabled, whether or not the disability is work-related, the LTDI benefits will pay a percentage (approximately 60%) of the worker’s lost wages. Social Security Disability Insurance (SSDI) is available only for people who have paid taxes to Social Security and incur a disability that prevents them from working and earning money. SSDI benefits are paid monthly, and the benefits are determined based on how much the employee has earned on his/her social security record.

Does LTDI Have any Impact on SSDI?

A common question many people have is whether LTDI could impact SSDI benefits. This depends on whether the applicant has an ERISA (Employee Retirement Income Security Act) LTDI policy or an individual LTDI policy.

  • An applicant who has an ERISA LTDI policy and is approved for LTDI benefits may be requested by the insurance company to apply for SSDI benefits as well. This is because SSDI benefits will offset the amount that the insurance company is required to pay in LTDI benefits.
  • Private LTDI policies or individual LTDI policies do not affect social security benefits. The applicant may receive both if he or she qualifies for both these benefits. There is generally no offset and you would receive the full amount in both cases. Thus, individual LTDI policies are beneficial though they may be more expensive.

A person having an ERISA LTDI policy will be required to repay his/her long-term disability benefits if they receive social security disability benefits. Typically, SSDI claims take a long time to process and therefore the SSA will have to reimburse the amount received from the claimant’s long-term disability insurance for the months he/she was disabled but his/her application had not been approved.

SSI or supplemental security income is a needs-based benefit program and therefore any amount a person receives from long-term disability insurance will lower the SSI payments.

Cost Factors

  • LTD insurance is purchased with premiums or monthly/annual charges that are calculated based on the applicant’s medical history, coverage needs, and the benefits period length. The LTDI coverage remains in effect provided the claimant has paid all the premiums. Typically, premiums may cost 1% to 3% of the claimant’s income.
  • SSDI is a free program, similar to other federal benefits programs.
  • A person buying a LTDI policy can choose to include a social security benefit offset rider to the policy. This rider is additional coverage one can add to a policy that increases one’s benefits. In this case, you pay lower premiums on your LTDI plan expecting that in the event of becoming disabled, you will apply for SSDI benefits and receive the same which will offset the amount the insurer has to pay. In other words, if one’s LTDI coverage is for $3000 per month, and the SSA pays him/her $1000 a month, the insurer has to pay only $2000 per month. The advantage of having an LTDI policy is that, in case the Social Security Benefits claim is rejected, the applicant will still receive the full $4000 each month in benefits from the LTDI payer.
  • If a claimant’s Social Security disability application is approved, he/she will be reimbursed also for the time they spent appealing the SSA’s earlier denial.
  • If the SSDI application is denied, the claimant will not have any other coverage option because long-term disability insurers do not provide coverage if the applicant is already disabled.

Coverage Criteria

  • A person has to apply for LTDI before he/she becomes disabled. It is a hedge against future disability, and as long as the applicant is paying premiums regularly the insurance is available. Unlike LTDI, you can apply for SSDI after you become disabled.
  • It is more difficult to claim SSDI benefits because the approval process is quite lengthy. The SSA would seek to find out whether the applicant is actually disabled, and also whether he/she may recover or adapt to other types of employment. A person who can do some other type of work, even if it is a less paying one, is usually denied benefit coverage. Comparatively, LTDI benefits are easier to claim. You can buy a policy that pays benefits even if you are able to do other work. However, you could face a problem claiming LTDI benefits if your disability stems from a pre-existing condition, which the policy may not cover, or criminal activity such as illicit drug use.
  • For both these types of insurances, the applicant must provide his/her medical history from their treating physician that describes their disabling condition. The SSA maintains a list of disabling conditions that they consider sufficiently severe to automatically be eligible for disability benefits. Other conditions that are not listed must be equally severe as any condition on the list. For LTDI coverage, the applicant just needs to show that he/she cannot work.

Benefit Period

  • For LTDI, the applicant would receive benefits when he/she becomes disabled and the benefits are paid for as long as the disability lasts. There is however, an initial waiting/elimination period of around 90 days for up to the defined benefit period. LTDI benefits could last just a few years or even until one’s retirement. The premiums will increase with increase in the benefit period.
  • For SSDI, there is no benefit period. The beneficiary will receive benefits payments until the disability improves or he/she is able to return to work. The SSA will periodically review the case; they may take into consideration various advances in medical technology that could help improve the claimant’s disability. In case the disability continues until retirement age, the disability benefits are automatically converted into retirement benefits.

The important thing to remember is that SSDI doesn’t cost the applicant anything. The only concerns are the lengthy claim processing time and the possibility of a denial. One major advantage of SSDI is that a person receiving benefits becomes eligible to receive Medicare, irrespective of his/her age (even though Medicare is usually open only to retirees.) as a medical chart review company assisting social security disability attorneys, we know that SSDI benefits are also available for a disabled person’s children. The child must be unmarried, younger than age 18 or a full-time student up to age 19; or younger than 22 but also disabled. A child’s SS benefits are calculated as a percentage of the parents’ disability benefit, up to a family maximum payment of between 150% and 180% of the parents’ full benefit amount.

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