A look at the advantages of Social Security disability over Long-term Disability paid by an employer or insurance company.
"Why should I apply for Social Security disability benefits if my employer or insurance company is already paying benefits?"
Thousands of disabled Americans who don't know the answer to that question are shortchanging themselves. And so are employers who don't realize the lack of Social Security qualification is costing them a larger share of their employees; disability benefits than necessary.
Jim Allsup, president and CEO of Allsup Inc., a nationwide disability representation company, was asked to address this question. According to Mr. Allsup, disabled individuals need to know and understand the five specific advantages of qualifying for and receiving Social Security disability benefits-advantages that might not be available through an employer or an insurance company disability plan. Employers who understand these advantages and help their employees understand them will benefit as well.
#1) Increased Monthly Income
Long-term disability benefits or disability pensions from an employer or insurance company are generally not adjusted for inflation. However, Social Security disability benefits increase when Social Security cost-of-living adjustments are made. When the Consumer Price Index increases a certain percentage, Social Security benefits follow. However, the monthly benefit amount from an employer plan generally remains the same. If a disabled employee currently receives $1,000 monthly from an employer, 10 years from now that employee will still receive a $1,000 monthly payment regardless of inflation.
#2) Increased Retirement And Survivors Benefits
Social Security disability entitlement "freezes" a person's Social Security earnings record. In other words, the time period during which a person receives Social Security disability benefits is not counted as time the person is employed. With employer or insurance company plans, this isn't the case. This is important because future benefits-Social Security retirement benefits, dependents; benefits or even subsequent disability or survivors; benefits-are computed based on a person's average earnings during a period of time; for example, the past 35 years.
If there were no earnings for a number of months or years because of a disability and that period of time is included in the calculation, the average will be lower and the benefit computation will be lower. Because Social Security doesn't count that period of time at all, there is no negative impact on the average earnings.
#3) Tax-Free Income
This advantage is contingent upon how a premium is originally paid on long-term disability benefits.
For example, if a person pays the premium during working years out of post-tax dollars, then the long-term disability benefit is not taxable when received. If a person did not pay the premium (but was paid by another source), or if the person paid the premium out of pre-tax dollars, then the long-term disability benefit is taxable when received. In addition, 50 percent of a Social Security disability benefit is also taxable.
#4) Medicare Coverage
Only 25 percent of today's employers offer extended health care benefits to their employees and most employers only offer COBRA protection on disabilities. COBRA legislation mandates that an employee can purchase 18 months of health coverage when leaving a company. However, if a person qualifies for Social Security disability during the first 18 months of COBRA coverage, an additional 11 months of COBRA can be purchased. So, obtaining Social Security disability can provide a person with health care coverage for up to 29 months after a disability occurs.
The disabled person, regardless of age, is then eligible for Medicare coverage when COBRA expires. Medicare coverage includes Part A hospital benefits and Part B medical benefits, which, when added to any other health insurance coverage, will increase overall health insurance protection. (Note: Some businesses are exempt from offering COBRA coverage, such as those with not-for-profit status and those with fewer employees than the federally required minimum.)