The last year has made us all acutely aware of soft spots in our financial situation.
Fortunately for many, government programs have stepped in to provide safety net support.
May is Disability Insurance Awareness month. The goal is to provide information on the types of coverage available and encourage individuals and employers to consider how these products might assist in building a plan for financial security.
The Council for Disability Awareness, a non-profit research and education group, estimates that roughly a quarter of today’s 20-year-olds may become disabled at some point in their working lives. That is significant enough risk to consider contingency plans.
We have some social safety net policies in place currently: State Disability Insurance (SDI), Worker’s Compensation and Social Security Disability Benefits. There are also benefits to continue income under Paid Family Leave for a myriad of situations. These are quite helpful, particularly for lower income individuals, but they are often inadequate for higher earners.
State Disability Benefits are straightforward. According to the state’s website, a disability is “an illness or injury, either physical or mental, which prevents you from performing your regular and customary work.” Disability may also include elective surgery, pregnancy, childbirth or other related medical conditions. Depending on your income, if you’re eligible, you can receive about 60% to 70% of wages earned five to 18 months before your claim start date. You can be paid benefits for a maximum of 52 weeks. To qualify you must complete the forms and meet the criteria:
- Complete a seven-day, unpaid waiting period.
- Have earned at least $300 in wages that are subject to SDI deductions (“CASDI” on your paystubs) during the 12-month base period of your claim.
- Have your physician/practitioner certify to your disability by completing the Physician/Practitioner Certification. (Note some physicians will charge for completing this form).
Self-employed individuals may consider enrolling in State Disability Benefits.
Social Security Disability is designed for longer term disability. According to the SSDI website https://www.ssa.gov/benefits/disability/, the SSDI program pays benefits to you and certain family members if you are “insured.” This means that you worked long enough — and recently enough — and paid Social Security taxes on your earnings. The Supplemental Security Income (SSI) program pays benefits to adults and children with disabilities who have limited income and resources.
While these two programs are different, the medical requirements are the same. If you meet the non-medical requirements, monthly benefits are paid if you have a medical condition expected to last at least one year or result in death.
If the disabling injury is work related, then Workers Compensation Benefits may be paid. This could include some replacement of income if unable to work as well as payment of medical expenses related to the disability.
Commercial disability Insurance is designed to fill in the gaps in these social programs. Most commercial plans provide or offer benefits that co-ordinate with social insurance. This means that should the social insurance not be paid, the commercial plan will pay and vice-versa.
There are challenges for insuring certain high risk occupations such as tree fallers, roofers and even dental hygienists.
High income professionals will want to pay special attention to the way the insurer defines disability. There are nuanced difference between “own occupation” and “regular occupation.” They are not necessarily the same. If an individual physician goes on claim as a physician, it’s key to have plan that covers for the specialty. For example, a surgeon wants to verify that if on claim with a hand injury, their benefits are not such that it would stop paying because the doctor could practice as a primary care physician.
Plan benefit choices include:
- Waiting period or elimination period: This is the time that one is disabled and not collecting benefits. In California this is typically between 60 and 365 days.
- Benefit period: the length of time benefits continue which can be from 1 year to age 65 or lifetime.
- Benefit riders such as COLA (Cost of Living Adjustment), Partial or Residual Benefits that will pay if the insured is not totally or permanently disabled.
Premiums will depend on age, health, occupation and gender.
Employers will find group disability insurance surprisingly affordable. In this tough recruiting environment, additional benefits may be key to securing an employee. Single employees may not have the potential second income to cover if they are unable to work. Most families are not banking 100% of the second income in the household, so this coverage can be important to them as well.
The pandemic has given us an opportunity to really look at our financial situation. If there a holes, it’s time to contact your agent.
Margaret Beck has been a licensed insurance broker since 1978. Call her at 225-8583.