Public disability benefit programs may provide some protection against loss of income because of disability, but whether and how much these programs might help depends on whether you would be eligible for any benefits. These safety net programs include the Federal Social Security Disability Insurance (SSDI) program, state workers’ compensation programs, and mandated short term disability insurance coverage. Each of the programs has drawbacks. Each one comes with restrictions and limitations and none of them can be relied upon to provide adequate, comprehensive disability income insurance protection. You should not assume that you can rely on these programs to cover your need if you become disabled and unable to work.

Social Security Disability Income Insurance (SSDI)

While SSDI can be a source of disability income insurance protection, qualifying for the benefit is difficult because the SSDI definition of disability is very restrictive. In order to qualify for SSDI benefits, individuals must have significant physical or mental impairments that prevent them from engaging in any substantial gainful occupation. Substantial gainful occupation is defined as any employment where a person can earn at least $940 per month.

There are two problems with this definition. First, it requires you to be disabled from any occupation – not your occupation. Second, it sets the bar very low as far as what “substantial gainful occupation” means. . If the SSDI administrators decide you are capable of doing any kind of work that will earn you $940 per month (2008 figure), they will declare you ineligible for SSDI benefits. For example, if, as a skilled craftsman you earned $5,000 per month before you became disabled and are no longer able to work as a craftsman but are still capable of doing some job that would earn $940 per month (2008 figure) you do not qualify for SSDI benefits.

Furthermore, to qualify for benefits, your disability must be expected to last at least one year or result in death. This is a very stringent requirement, one that you will find in few, if any, disability income insurance policies. The final challenge is fighting your way through the administrative red tape to qualify. The administrative process required for SSDI benefits has been known to take years.

To give you a vivid picture of the relative difficulty of qualifying for SSDI insurance benefits, the following chart shows the percentage of individuals who qualified for private long term disability income benefits (through employer-provided long term disability income insurance programs) but whose disabilities were not approved for SSDI disability insurance benefits. This information was collected by The Principal Financial Group and is for the years 1997-2002.

Percentage of Private Disability Insurance Beneficiaries Who Have Not Qualified for SSDI Benefits

In other words, for individuals who qualified for private long term disability income insurance benefits who also applied for SSDI, 42% still had not qualified for SSDI after one year of disability, 33% after two years, 25% after three years, 20% after four years and 18% after five years. That is how difficult it is to obtain SSDI benefits.

As you can see, it is not wise to assume that you will be able to collect SSDI benefits if you become disabled.

Even if you do qualify, SSDI benefits alone may not provide sufficient income to maintain a pre-disability standard of living – especially for higher income workers. The annual SSDI benefit for a disabled person who had been making $25,000 per year would be around $12,500. For a worker who earned $50,000 per year at time of disability, the SSDI benefit would be slightly higher, about $13,500, and for someone who had earned $100,000 per year at time of disability, the SSDI benefit would be about $19,000. In other words, in all these examples, the SSDI would be below the Federal poverty level for a family of four.

So, even if you can qualify for SSDI, you’d better have something else available because SSDI alone won’t be enough.