Why Do You Need Disability Insurance When You Can Apply for Social Security?


If you know anything about Social Security, then you know that it isn’t just to provide retirement benefits. Social Security also pays disability to those who need it. So why do you need disability insurance when you can apply for Social Security?

Two reasons: it won’t be easy, and it probably won’t be enough. Let’s consider the details of that contention.

Social Security Disability Insurance (SSDI) – The Basics

Social Security Disability Insurance, or SSDI for short, is that part of the Social Security program that provides benefits for people who are physically unable to remain employed due to long-term disability. Though benefits are generally paid out to people experiencing physical disabilities, they can also be paid for incapacitation related to mental health issues.

By the end of 2015, SSDI benefits were being paid out to nearly 11 million Americans, at an annual cost of over $120 billion.

SSDI is managed by the Social Security Administration, and is funded through payroll tax deductions, included in FICA payroll taxes.

That’s the general overview of SSDI. But let’s get back to why relying entirely on SSDI to cover you in the event of disability is not the best strategy.

SSDI Is NOT Easy to Qualify For

One of the biggest reasons why this is true is because in order to qualify for SSDI you have to have a medical condition that meets the Social Security Administration’s definition of disability. That definition may not be consistent with what you, your doctor, or your employer believe will qualify you for benefits.

Social Security uses the following five criteria to determine if you are disabled:

  1. If you are working in 2016 and your earnings average more than $1,130 a month, you generally cannot be considered disabled.
  2. Your condition must interfere with basic work-related activities for your claim to be considered. If it does not, we will find that you are not disabled.
  3. For each of the major body systems, we maintain a list of medical conditions that are so severe they automatically mean that you are disabled. If your condition is not on the list, we have to decide if it is of equal severity to a medical condition that is on the list.
  4. If your condition is severe but not at the same or equal level of severity as a medical condition on the list, then we must determine if it interferes with your ability to do the work you did previously. If it does not, your claim will be denied.
  5. If you cannot do the work you did in the past, we see if you are able to adjust to other work. If you cannot adjust to other work, your claim will be approved. If you can adjust to other work, your claim will be denied.

That list of requirements can make it very difficult to be eligible for benefits based on the way many of us may interpret the concept of disability.

You Must be Completely Disabled to Get SSDI

Under the SSDI program, there is no such thing as partial disability. Under the Social Security definition of disability, you must be deemed completely unable to work. That means that you cannot do work that you did before, and that you are unable to adjust to other work because of your medical condition.

It’s an all-or-nothing proposition; either you qualify as fully disabled and are eligible for SSDI, or you don’t.

Private disability insurance policies have similar rules, however there is a workaround option available that does not exist with SSDI. Under an “any occupation” disability policy, you must be unable to work in any capacity in order to qualify for benefits. This is essentially how SSDI sees it.

But with a private disability insurance policy, you also have the option to take an “own occupation” policy, which means that you will qualify for benefits based on the fact that you are only unable to work in your own occupation. There will be no requirement for you to consider other, more tolerable employment situations.

There is No Short-term Coverage Under SSDI

In order to qualify for SSDI your disability must be expected to last for at least 12 months. There is no form of short-term disability coverage under the SSDI program.

The rules governing SSDI make the assumption that the person or family has other resources available to cover short-term financial needs. Resources that are assumed to exist include workers compensation, other forms of insurance, and personal savings and investments.

SSDI Benefits Are Often Seriously Delayed

Because of the strict requirements to be eligible for SSDI benefits, claims are often seriously delayed. You should probably expect a minimum of six months to pass between the time you make application for SSDI benefits and you actually receive them.

It is estimated that only about one out of every three claims for SSDI benefits are approved on the initial application. If you are not one of the lucky one-third, you will have to appeal the decision made by the Social Security Administration. This often requires that you retain the services of an attorney who specializes in disability law.

The Monthly Benefit Under SSDI is Probably Inadequate

Consumers may think that it’s unnecessary to have an employer or private disability insurance policy because they can receive benefits under SSDI. And while it’s true that you can file a claim for SSDI, the monthly benefit may be underwhelming – certainly not enough to cover your regular living expenses.

According to the Social Security Administration, the average monthly benefit payment under SSDI is $1,165. That benefit will certainly help, especially absent any other type of benefit, but it will hardly enable the average household to live comfortably.

By contrast, you can purchase a private disability policy that will replace up to 60% of your pre-disability income level. Such policies will generally provide benefits of up to $5,000 per month, which is a lot closer to a living wage than $1,165.

Know that SSDI is there just in case, but always keep in mind that the benefit is minimal. You’ll need a private disability plan to enable to you live even reasonably close to your current standard of living, and even to provide for short-term needs. We are here to help if you’d like to look into getting your own disability insurance policy.

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