Why should I spend extra money on private disability insurance when that protection is available through Social Security Disability Insurance (SSDI) or workers compensation? That’s a good question and, as earlier articles in this series have shown, the answer is that private insurance is necessary because protection through SSDI, workers compensation and other “safety net” programs is somewhat illusory.

Many people dismiss the idea of purchasing private disability insurance because they think the risk of disability is low and believe that, even if they become disabled, they do not need to pay extra because “safety net” programs such as Social Security Disability Insurance (SSDI) and workmen’s will take care of them if they can no longer work. But, as other articles in this series have shown, those assumptions are wrong. The risk of sustaining a disabling injury or illness at some time during a working career is too high to be dismissed and those “safety net” programs may not be there when needed or, if they are, benefits will be limited.

Consider SSDI. Even though workers pay for this through Social Security, the definition of “disability” is so stringent and requirements for qualification are so difficult that many people discover after they apply for benefits that they do not qualify. And, even for those who do qualify, the benefit probably will not be sufficient to replace pre-disability income. In fact, depending on the level of pre-disability income, SSDI may be woefully inadequate. Finally, even for those who do qualify and conclude that the benefit will be sufficient, administrative red tape and paper work for SSDI approval can take years before any benefits are paid. Workers’ compensation is the other piece of the so-called “safety net.” All states require some kind of workers’ compensation program. Under these programs, workers who become injured or sick on the job are entitled to limited disability income benefits. Typically these benefits equal about two-thirds of pre-disability income, depending on state maximums. But there is a catch. Workers’ compensation programs only provide disability income for job-related injuries or sickness, which means that most people who become disabled are not entitled to workers’ compensation benefits.

The National Safety Council JHA 2002 U.S. Group Disability Rate and Risk Management Survey documented the fact that most long term disabilities are not covered by workers’ compensation. According to whether disability due to illness or injury was job related, the survey showed:

Off-the-job injuries - 6.6%

Off-the-job illnesses - 89.5%

On-the-job injuries - 3.5%

On-the-job illnesses - 0.4%

Overall, in 2002 only 3.9% of all injuries and illnesses causing long term disability were job-related and, therefore, eligible for workers’ compensation disability benefits. In other words, 96.1% of all disabling illnesses and injuries were not work-related and did not qualify for these benefits.

State temporary disability programs are another possibility, but only if you live in one of the six states that have such a program. Too, these state programs are limited in amount of benefit and length of benefit period, as shown in the following chart, prepared from information obtained from the state programs.

The chart demonstrates that, with possible exception of California, the potential benefit may be better than nothing, but probably will not be adequate.

The solution: investing in private disability income insurance to protect against the sudden, unexpected loss of earning power because of a disabling injury or illness.