HOW SOCIAL SECURITY DISABILITY IS LIKE AN INSURANCE POLICY
- The Forsythe Firm
- Mar 16, 2024
- 3 min read
Individuals are often surprised when I refer to Social Security Disability as "insurance." Yet, the name of the program is "Social Security Disability Insurance," often abbreviated as SSDI.
SSDI is really a disability insurance program provided by the US Government through the Social Security Administration. It was established in 1935 by President Franklin D. Roosevelt during the Great Depression, although today's disability part wasn't added until 1954.
Like all other insurance, SSDI has defined benefits, requires certain qualifications and must be paid for by each individual. The tax which pays for Social Security is called FICA, which stands for the law which mandates the tax: The Federal Insurance Contributions Act. Each worker pays a portion of wages, usually through payroll deduction. (Look at your pay stub and you will see a deduction for FICA; this is the Social Security tax). As long as you pay this tax you have insured status for disability. After you stop working and stop paying the FICA your disability coverage will eventually expire, though not immediately. That's why you can "wait too long" to file a new disability claim. Yes, your SSDI benefit does expire after you stop working--no matter how much you've paid into it in years past.
Here's an example I use: You pay your car insurance for 35 years. Miss one or two premium payments and---opps---your insurance is gone!
HOW SSDI IS LIKE ANY OTHER INSURANCE
General Insurance Policy Social Security Disability Insurance
Has a defined benefit Has a defined benefit
Has certain eligibility requirements Has certain eligibility requirements
Requires regular payment of premiums Requires regular payments (FICA)
Will require proof of a a loss Will require proof of disability
Has carefully defined terms/conditions Has carefully defined terms/conditions
Is basically a contract with the insured Is a contract through the Government
May be difficult to collect benefits May be difficult to collect benefits
Doesn't cover everyone; only the insured Doesn't cover everyone; only the insured
May require legal help to get paid May require legal help to get paid
Coverage may expire Coverage may expire
You are not required to purchase it Workers are required to purchase it
Most workers are not aware that they are purchasing disability insurance through the US Government and the Social Security Administration (SSA) when they go to work. This is "unseen" insurance but is "sold" to almost every worker in the United States. It is mandated (required) by the Social Security Act of 1935 and the Federal Insurance Contribution Act (FICA). It covers only workers and those who have worked recently.
So, we now understand that Social Security disability is not some universal thing given to everybody by the US government. It has to be earned and it has to be paid for. An individual must accumulate a certain number of "work credits" or "quarters of coverage" in order to be insured. (Yes, insured is the correct word). So individuals who haven't worked--or who haven't worked recently--may not be "insured" or covered. The general rule of thumb is: You must have worked at least 5 years out of the most recent 10-year period. That rule is a bit different for persons under age 31.
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