Disability Income Guide

How do you find out if you have enough protection? Where do you start? Are you covered by Group Disability Benefits?

First, find out exactly what benefits your employer offers in the event of a disabling illness or injury. Most employers allow some short-term sick leave, which might last from a few days to as much as six months, depending both on employer policy and on duration of employment. In some states (for example, Hawaii, New Jersey, New York, and Rhode Island), state law requires most employers to provide disability benefits for up to 26 weeks. In California, most employers must provide coverage for up to 52 weeks.

No laws require employers to offer long-term disability (LTD) insurance but it is estimated that almost half of mid-size to large employers provide long-term benefits for at least five years. Typical group long-term disability benefits replace about 60 percent of salary, start when short-term benefits are exhausted, and continue anywhere from five years to life. Often, group long-term insurance is fully paid for by employers without contributions by employees. (That's why employer-paid disability income benefits are subject to income tax.)

Check with your employer's benefits office to see if you are covered and, if so, what is available to you. Find out how long you must wait before benefits begin and how long payments will continue during your disability. Find out, too, whether your employer's plan takes other disability coverage (such as government programs) into account when calculating your long-term disability pay. Ask for a booklet describing the disability coverage your company offers.

What About Social Security Benefits?

Most salaried workers in the United States participate in the federal government's Social Security program. Social Security is best known for its retirement benefits. But the Social Security Administration also administers disability benefits. In 1992, 2.4 billion dollars in Social Security disability payments were sent to 4.8 million Americans.

Your salary and the number of years you have been covered under Social Security determine how much you can receive. In 1992, the average monthly payment for a disabled worker was $642; the average monthly payment for a family consisting of a disabled worker, spouse, and one or more children was $1093.

Here Are Some Important Points to Remember:

Eligibility is based on being unable to perform any gainful employment, not just the job you were performing at the time the disability began.
You are eligible for benefits after you have been disabled for 5 months and if the disability is expected to last 12 months. Claim processing may take up to 3 months, so file as soon as possible.
Social Security payments may be reduced by disability entitlements under other government programs. Why? Because total combined payments under Social Security, workers' compensation, civil service, and military programs generally cannot exceed 80 percent of average predisability earnings. A government pension also may reduce Social Security disability payments.
After 24 months of benefits, recipients qualify for Medicare. If you want the medical insurance portion of Medicare, in addition to hospital coverage, you must enroll and pay a monthly premium.
Social Security disability payments are subject to federal income tax if your adjusted gross income plus any nontaxable interest income and half of you Social Security benefits exceed a total of $25,000 (if you file tax returns individually) or $32,000 (if you file jointly). For taxable years 1994 on, up to 85 percent of Social Security disability payments are subject to federal income tax if the total--as calculated above--exceeds $34,000 (individually) or $44,000 (jointly).
Social Security disability payments can be an important part of you income should you suffer a disabling illness or injury. Contact your local Social Security office for an estimate of the disability benefits to which you would be entitled.

Are You Eligible for Other Disability Income?

There are many other potential sources of income if you become disabled:

Workers' compensation benefits, if you suffer an accident at work or an illness that results from your employment.
Veterans Administration pension disability benefits, for eligible veterans.
Civil service disability pay, for federal or state government workers.
Black lung program for miners.
State vocational rehabilitation programs.
Group union disability coverage.
Automobile insurance, if disability results from an auto accident.
Private insurance, such as credit disability insurance, that makes monthly loan payments when you are disabled.
Supplemental Security Income (SSI) for persons with low income and limited assets.
Medicaid, also for persons with low income and limited assets.

The availability and extent of these and other programs vary widely in different locations. But, because one or more may be an important source of income should you become disabled, it's important to determine whether you are eligible. If you are, you should also find out how long benefits will be paid. And, of course, your own resources--the savings you've put aside over the years--are another valuable source of income.

How Much Disability Income Will You Need?

Add up all the benefits you are entitled to under the public and private programs mentioned, along with the monthly income you could count on from other sources such as your savings. If the total approaches your required income after taxes, you can assume that, should total disability strike, you would be able to pay your day-to-day bills while recuperating. You must remember that eligibility for Social Security disability benefits are contingent upon your disability being expected to last for at least 12 months. If the total from employer benefits, Social Security, and other programs along with your own resources will not be close to your pre-disability, after-tax income and will not be adequate to support your family, you will want to consider buying additional disability insurance to make up the difference.

The amount of long-term disability you may receive through your employer's group plan or your personal insurance benefits may be reduced by the amount of Social Security or other government benefits that may be paid.

A Special Note for Employers

If you are your own employer, consider a group policy for you and your employees. If you are a sole practitioner, or if you work for a business that does not provide benefits under a group policy, an individual policy is a good idea. After all, if you do not receive benefits, your entire business may suffer.

An agent can be helpful as well. Whether you are an employee or an employer, your insurance agent can help analyze your sources of disability income, determine waiting periods for various benefits, and determine whether additional coverage would be wise.

Disability Income Work Sheet

	Monthly Amount	After Waiting For a Period of
Sick leave or short-term disability
Group long-term disability
Social Security
Other government programs
Individual disability insurance
Other income
Savings
Spouse's income
Total monthly income while disabled $