Many people have preconceived notions about what a disability is and which ones are legitimate. Every one of us has seen an ostensibly able-bodied person whip into a handicap parking space, with the requisite sticker on their vehicle, only to walk briskly into a grocery store without any physical limitations. For this reason, many questions linger about disability and what conditions actually prevent people from participating meaningfully in work and play.
There is a range of physical, cognitive, emotional, and developmental impairments that may prevent individuals from earning an income. These impairments can be present from birth or can come about through accident or illness. Contrary to popular belief, people who suffer from a disability are most often honest individuals who need help meeting their financial and healthcare needs, and are not merely out to receive a “free ride” from the government. Obviously, the inability to earn an income due to disability can cause major financial, familial, and emotional strain.
Even the healthiest of us should pause and consider whether we’re prepared for a disability. As of 2013, 25% of healthy young adults are going to have to leave the workforce prior to the age of 65 due to a disability, on average for a period of two and a half years. Most Americans are not prepared for a chronic financial drain like that. Indeed, the leading cause of home foreclosure and bankruptcy in the United States is loss of income due to disability. You may have purchased home insurance to recover from a loss resulting from fire or weather, but the prospect of losing your home due to disability is actually much more likely.
How to Keep Disability From Causing Financial Hardship
There are a number of ways you can prevent financial ruin due to being afflicted with a disability. Some are preventative, in case you are stricken with a disability later in life, while others can help you if you suffer from debilitating conditions now.
1. Disability Insurance
The best way to mitigate the fallout from a short-term disability is to take advantage of insurance plans available through your employer. Disability policies offer rates ranging from 1% to 3% of an employee’s salary, depending on age, income, and industry. This means that a person making an annual salary of $50,000 can expect a policy to cost between $500 and $1,500 per year. Should you become disabled, you can expect benefits of 50% to 60% of your salary.
There are two main types of disability insurance, short-term and long-term.
- Short-Term Disability. Short-term policies usually offer coverage up to six months of disability.
- Long-Term Disability. Long-term policies kick in for disabilities lasting six months to two years – although they may extend indefinitely, depending on the policy’s terms.
$500 to $1,500 might feel like a significant out-of-pocket expense, but many employers pick up a portion of your premiums – often a significant amount. If you purchase policies through your employer, the process is usually as simple as signing up during your company’s enrollment period. It’s a little trickier if you try to purchase a policy outside of your employer on the open market. Your rate is based on your age and health status, which may require a physical and certain health-related questions to be answered.
2. Emergency Fund
Purchasing both short- and long-term disability policies is especially important if you haven’t yet built up an emergency fund. Once you accumulate at least six months’ worth of emergency savings, you may want to consider dropping your short-term disability policy and infusing those savings into your emergency or retirement fund. However, many people feel that the monthly premiums are well worth any continued peace of mind – plus, if an employer is footing the bill it makes sense to hang onto it.
3. Government Assistance
Thankfully, the United States has a safety net for people who endure a disability. However, the average monthly SSDI (Social Security Disability Insurance) payment is $1,158, so if you think it might be a challenge to live on that, you need to plan ahead. The prospect of having to rely on public housing, Medicaid, supplemental security income, and charity assistance for your basic needs might not be very comforting. Government assistance provides a financial safety net to most disabled persons at risk for poverty, homelessness, and unequal access to healthcare. In no way does it guarantee disabled people the ability to maintain their previous lifestyle. It simply guarantees that they can have a roof over their head, access to medication, and some food in the pantry.
That said, people who find themselves in the short-term disability phase of an illness or accident still need to apply for government assistance through the Social Security Administration if they aren’t able to return to work. Despite common feelings of grief or helplessness that accompany filing a disability claim, it should never be shunned, mainly because of the two types of protection it offers:
- Income Protection. Because you’ve paid into it through taxes, the Social Security Administration gives you a monthly SSDI check to help cover expenses, regardless of your level of personal wealth, should you become disabled. If you have little money saved and a low income stream, you may qualify for an additional check, called Supplemental Security Income (SSI). The amount of money a person can obtain through SSI varies, but the average in 2013 is just over $700 per month.
- Medical Benefits. Contrary to popular belief, disability benefits are not given in tandem with medical benefits. Once you obtain disability benefits, you must wait 24 months to enroll in Medicare unless you have a specific condition that warrants immediate Medicare coverage. As a result, disabled people sometimes go without medical insurance, unless they’re able to enroll as a dependent on a spouse’s insurance plan. The major exception to this is if a disabled person is eligible for SSI. If so, that person is automatically eligible for Medicaid, which can serve as a good bridge to Medicare.
Application and Receipt of Benefits
Disability applications can take a very long time to process, and the receipt of income and medical insurance can take even longer. This is why it’s important for eligible individuals to apply as soon as they become aware they cannot return to work. Usually, the government does not accept applications until a person has been out of work for six months (which is even more reason to participate in short-term and long-term disability policies, since short-term benefits may expire prior to the receipt of SSDI). The one exception to this rule is if a person has a specific diagnosis that causes the Social Security Administration to fast-track the application. These serious conditions are called compassionate allowances, and examples include early-onset Alzheimer’s, leukemia, Huntington’s disease, and anyone on a heart transplant wait list.
If you feel that you may qualify for disability benefits, you can either apply directly through the Social Security Administration, or, since the application process can be challenging, you can enlist the help of a professional service. Daytime television is rife with commercials for disability lawyers, but these lawyers often take a large chunk of a disability payment once it’s received. Instead, consider looking at a nonprofit service such as Allsup for representation and assistance with the process.
And always hold onto your long-term disability policy, as it can run concurrently with your government benefits. If your payout from long-term disability is high, then your SSDI may be adjusted down and you won’t qualify for SSI, but you’re still entitled to certain government income benefits and all applicable healthcare insurance benefits. You do not want to feel like you’re at the mercy of the Social Security Administration for necessities.
If you’re considering a freelance job or self-employment, your emergency fund and disability insurance become that much more important. If you’ve started a career for yourself, you’ve probably already accounted for medical coverage, but you may have forgotten about disability policies. It might be tempting to forgo the additional expense, but both short-term and long-term policies can keep your family afloat during the lag time between initial illness and receipt of government benefits, should something unforeseen happen. Unfortunately, government disability applications can sometimes get bogged down in paperwork, appeals, and the courts, so you want to account for the possibility that you won’t receive your check the moment you apply for help.
For short-term disability policies, you can either do a quick Internet search or enlist the help of an insurance broker to find the best coverage, which can start immediately. Finding a good long-term policy is a little trickier if you’re self-employed. Most policies are based on income, and insurance companies often need to see proof of income over time prior to offering a policy. This makes it nearly impossible to start a business with long-term disability insurance lined up. Talk with an insurance broker about finding a short-term disability policy that can meet your needs while your business gets on its feet. Some policies allow you to use short-term benefits for up to a year instead of the usual six months. It may make sense, after talking with a broker, to retain at least partial employment with benefit coverage until you’re able to prove that your company earns money.
While most Americans are likely to make it to retirement age without a problem, the prudent measure is to mitigate the risk of suffering a disabling injury or illness by utilizing an emergency fund, short- and long-term disability benefits at work, and, if you find yourself disabled, applying for benefits through the Social Security Administration. A little bit of planning and some out-of-pocket expenses can prevent financial hardship, so get started today.
Have you planned ahead for a possible disability?