How To Get Disability Insurance And Maximize Benefits

If you ever get disabled, your active income generating abilities may be in jeopardy. As a result, it's wise to have disability insurance to cover you when you can no longer work. Bad things happen all the time.

During the pandemic, my myopia got worse. Further, if I spend longer than an hour on my laptop or phone at a time, I experience eye fatigue, dryness, and pressure. As a result, I can no longer pound out a post in two hours straight. I need to take breaks.

If my eyesight continues to worsen, I may have to evolve to just recording mostly podcasts. Or I might hire someone to transcribe and edit all my posts. If things get really bad, I might step away altogether and hire freelance writers and invite guest posters on Financial Samurai.

For those of you who are still 100% healthy, cherish your ability to work! Sooner or later, your health will fade. You may encounter bad luck as well. It will become harder to maintain your same work intensity as you age. Pre-mortem planning is a must.

I understood this sad reality after experiencing so many physical ailments during my banking career before age 25. As a result, I saved and invested as aggressively as possible to build passive income. I needed a financial safety net. At the time, I didn't understand the benefits of disability insurance.

Long-Term Disability Coverage Is NOT Required By Law

Unfortunately, no laws require employers to offer long-term disability (LTD) coverage. However, according to the Insurance Information Institute, about half of large and mid-sized employers offer it to their workers.

“Typical group long-term disability benefits replace about 60 percent of the worker’s usual salary. These benefits usually start when short-term benefits are exhausted and continue from five years to life.”

In addition, there ar​​e only five states that have state-mandated disability insurance requirements: CaliforniaHawaiiNew JerseyNew York and Rhode Island. Funny how I’ve lived in California and New York my entire post-college life and want to retire in Hawaii.

Hence, before joining any company, please thoroughly review all benefits. Don't just think about your salary and stock options. Look into your employer's profit sharing program, 401(k) match, continuing education support, health benefits, and insurance programs.

Let me share a guest post with you on one man's experience taking Long Term Disability Insurance and Social Security Disability Insurance benefits. His experience will help you navigate the process if you end up becoming disabled as well.

One Man's Experience With Taking Disability Insurance

My name is Adam and I run the website BlindLuckProject.com where we discuss all things FIRE (Financial Independence Retire Early) and how to make your own luck despite the odds.

Sam reached out and asked me to share my experiences navigating the Long Term Disability (LTD) Insurance and Social Security Disability Insurance (SSDI) systems after I became disabled due to blindness. I’ll also share what tips and tricks I have for anyone else using these safety nets.  

Let’s go through my experience step-by-step in the hopes that what I’ve learned will help someone who is facing the same predicament. 

What Happens After You Are No Longer Able To Work?

There are several steps to get disability insurance that can feel overwhelming. But with knowledge and patience, you can get through them all. Here's an overview of what's involved.

Basic Steps Of Disability Insurance:

  • Medical Leave of Absence
  • Short Term Disability – STD (typically 90 days if offered by employer) 
  • Long Term Disability -LTD (starts after STD expires if offered by employer)
  • Medical Layoff (After LTD claim is approved)
  • COBRA (starts after medical layoff)
  • SSDI (start application 6 months after first day of becoming disabled)
  • Medicare (24 months after being approved for SSDI)

GEEZ! Who knew disability benefits were so involved! You’ll be dealing with multiple stakeholders and different insurance, medical, and government programs. But have no fear, I’ll walk you through what to expect step by step.   

Related: Do I Need Disability Insurance?

Stakeholders:

  • Yourself
  • Your Employer
  • Your Doctor
  • Insurance Company
  • Lawyer (likely hired by insurance company)
  • The Government SSA Office

Medical Leave of Absence

The first thing that happens when you are unable to continue working due to a disability is you will be placed on a medical leave of absence. At this point, you are still employed at the company and will continue to qualify for benefits such as medical insurance.

You will likely be asked to pay the premium for medical insurance and other benefits at this time because the employer is no longer deducting them from your regular paycheck (since you are no longer being paid).

That’s right. You will go from receiving a paycheck to paying your employer! This is where having 3-6 months saved up is important because there will be more costs down the road.

Short Term Disability – STD (typically 90 days)

Next, HR will initiate a short term disability claim with the insurance company by sending them some forms. The insurance company will then request more information from HR and will also send you some forms for you and your doctor to fill out explaining the nature of your disability. 

If all goes smoothly, you’ll start receiving benefits after the exemption period. In my case, I received 60% of my base pay after the two week exemption period was completed. The policy I had didn’t consider bonuses or commission part of my base pay.  

Long Term Disability – LTD (typically ranges from 2 years to retirement age)

Once STD is used up (in my case 90 days), HR and the insurance company will start a LTD claim. You may be asked to go back and see the doctor at this time. This may take some time depending on your situation.

In my case, my company knew I was going to be a LTD case since my condition isn’t curable, so they worked on getting this claim together ahead of time. If your disability unexpectedly exceeds the 90 day STD policy, you may see an interruption of benefit payments while the long term disability claim is being processed.  

Once your LTD claim is approved, it is presumed you will not be coming back to work. I went through a medical layoff. Basically, this means I wasn’t fired and I didn’t quit. These details are important for claiming government benefits. (We’ll get into this more.) At this point, you are no longer an employee of the company, and any benefits you were receiving will end.  

FYI: LTD may periodically ask you to go in for a follow-up to ensure you are still disabled. They’ve asked me once so far.  

Related: Use The Family Medical Leave Act (FMLA) To Negotiate A Severance

COBRA 

COBRA is an extension of your company's medical insurance. However, you pay the full amount of the policy premium. You can choose to continue with the insurance you had as an employee paying the COBRA premium (Mine was $745 a month for one person.), or you can choose to find a policy on your own.

I highly recommend you maintain continuous insurance coverage. If you allow your policy to lapse you may not qualify for Medicare benefits. These benefits could be an enormous cost savings to you in the future. (We will discuss Medicare below.)

You can keep COBRA coverage for up to 18 months after you are no longer employed. This can even be extended sometimes with qualifying events such as disability or death of a spouse. Check your policy and make sure you understand your coverage. 

I opted for the COBRA plan. It may not have been the cheapest, but I had a lot on my plate at that point in life, and the insurance was very good. Sometimes D for done is better than not done at all.    

Social Security Disability Insurance (SSDI)

Six months from the date you were determined to be disabled you will become eligible to apply for SSDI benefits. 

Please Note: Your LTD policy may consider you disabled even if SSDI doesn’t. That being said, these are two independent programs. You may qualify for one and not the other, or (like in my case) you may qualify for both. If you do qualify for SSDI benefits, that amount may be deducted from your LTD benefit payment. Check your policy.  

Policies may differ here, but in my case this was good for the following reasons.

  • My LTD benefits were fixed and didn’t include a yearly cost of living adjustment like some do. But benefits from SSDI do increase yearly based on the cost of living adjustment (COLA) rate released by the government.  The 2022 increase was 5.9% and the 2023 COLA is huge at 8.6%.
  • If you qualify for SSDI, you will most likely qualify for Medicare (a subsidized healthcare program) later. 

For my SSDI claim, my LTD insurance provider contracted an outside law firm to assist in filing it. The lawyer was provided at no cost to me. There is some debate online about whether you should take this free lawyer. Some people think you should get your own lawyer to represent you.  

A few things to consider: 

  1. The goals of the LTD provider and yours are aligned when submitting a claim for SSDI benefits.The insurance company will save money by deducting the initial benefit determined by SSDI. You keep the yearly COLA increases and qualify for cheap medical insurance (Medicare).
  2. A private disability lawyer typically wants a 10% cut of all benefits paid out by SSDI. I was 33 at the time and my SSDI benefits (if approved) would pay until age 67. That meant the lawyer could be collecting a considerable amount of my money- well north of $100K in my situation. Not a very good price for a relatively simple case. 

Needless to say, I took the free option and it worked out fine. The lawyer filled out some paperwork, SSDI asked for medical records, and then I received a notice to go see a doctor they had picked. Their doctor made the same assessment that mine had, and the case was approved by SSDI in about 4 months. 

Please note: 

If you do not have STD or LTD, in this example you would not have been paid for 10 months (6 month waiting period + 4 month processing to be approved). This was actually considered a relatively quick approval time for SSDI. Many people experience a longer process.  

*Having an emergency fund is extremely important when you go through this lengthy process!  

When my case was approved by SSDI, I received a check from them for four months of benefits-  back pay for the period my application was being reviewed after I applied. Just a heads up- the LTD company will ask for the backpay on overpayments that should have been deducted from their benefits to you while you were waiting for SSDI approval.

In my case, this amount was around $10K. So fair warning- That first check isn’t really for you. Don’t go spend it all in one place. (If you don’t have LTD and are just claiming SSDI, this won’t be an issue for you.)

Related: What Is The Best Age To Collect Social Security Benefits?

Medicare (30 Months)

After 30 months (6 months to start SSDI process + 24 months of active benefit entitlement), you will be eligible for Medicare. I paid COBRA $745 a month for 30 months for a total cost of $22,350. My new Medicare insurance premium is $174 a month, which is a $6,852 savings per year.

However, Medicare isn’t as good as my old health insurance plan, and I will have to pay more out of pocket. But considering I’m still a relatively young 35 and have no medical conditions (other than being blind), I’m willing to settle for the base plan.

There are supplemental plans you can choose if you need additional coverage for prescriptions, etc. but they do come at an increased cost.  

How To Get Disability Insurance And Maximize Benefits
Tactile paving blocks (first introduced in Japan) aid visually impaired pedestrians.

Income Limits To Remain Eligible For Disability Benefits

So now you know how I receive income and benefits from multiple sources. Keep in mind, there are some income limits to maintain eligibility for these programs.

Long Term Disability – LTD

To remain eligible for my LTD policy, I can make up to 95% of what my qualified base salary was in earned income. The policy states I am no longer “functionally disabled” after this point. I need to report if I start working again.

If my income exceeds 40% of what my qualifying base salary amount was, the LTD benefit will start being reduced to ensure I don’t exceed the 100% net earned income that I was insured for.

Social Security Disability Insurance – SSDI

To remain eligible for SSDI, you can make earned income up to what is called the Significantly Gainful Activity (SGA) Limit. For the year 2022, this was $1,350 for disabled individuals and $2,260 for blind individuals. In 2023, the SGA limit is $1,470 for disabled individuals and $2,460 for blind individuals.

Now you might be wondering why blind people have a higher SGA limit in the SSDI program. Great question! Turns out blind people have lots of preferable treatment throughout the legal system. As for why, I’m not entirely sure.

Some people have told me it’s because blindness is a hard disability to fake. Others have told me a lot of this legislation was passed after WWII when wounded veterans were coming back. A common injury was blindness due to the advent of chemical weapons such as mustard gas being used. 

Medicare

All individuals who qualify for SSDI also qualify for Medicare after the 24 month qualifying period which starts when you apply for SSDI benefits (6 months after becoming disabled). This means the income limits for Medicare as a disabled person are the same as they are for SSDI.  

Please Note: SSDI and SSI are different programs.  If you are on SSI, the income/ asset requirements are much more restrictive and are outside the scope of this article.  

Additional Sources Of Income To Explore

You’ll notice I was very specific about earned income above. That’s because these policies were designed to insure you against the risk of losing the ability to earn wages due to a disability event. These are insurance programs that you paid for, not welfare programs such as SSI, so they are not means tested.  

This means that net assets and non-wage or unearned income aren’t counted against these limits. The terminology between the programs is different but what is considered earned/ countable income is similar.    

Long Term Disability – LTD

LTD doesn’t count unearned income toward your income limit. This includes income such as rental income, dividends, capital gains, qualified benefits, gambling winnings, and gifts. Your policy should have a list of what is considered countable income.  

SSDI & Medicare

These programs use the Significantly Gainful Activities (SGA) definition for counting income.  

Countable income includes regular wages, self employment income (income minus expenses), and other labor that could be considered as having reasonable value. (This was added to keep farms and family businesses from hiding countable income.)

This means you can earn as much money as you want from rental properties, dividends, capital gains, etc. You could also win the lotto, get gambling winnings (as long as you don’t go pro),  and receive gifts or a large inheritance.

Remember these programs insure against the lost ability to earn wages due to a disability and are not based on net assets or investment income.

Disability Insurance: 6 Potential Pitfalls To Watch Out For

1. Giving up too soon. 

If you become disabled it may be tempting to give up, but the longer you work, the more SSI taxes you pay into the system. Your SSDI payment is calculated based on your ranking on the Average Indexed Monthly Earnings Table (AIME). This is then plugged into the PIA Formula for a final payout amount. 

This amount ranges from 0 to $3,348 a month, with an average of $1,358 for 2022.  Keep in mind SSI pays $886, so if you have little work history you’ll likely end up on SSI if you become disabled. In short, it is in your best interest to work as long as possible so you’ll receive a higher SSDI check when the time comes. 

2. Getting fired.  

If you get fired, you will not be able to collect LTD and collecting SSDI will be more difficult. If your performance at work is suffering due to vision loss or another disability, communicate that with your employer to find reasonable accommodations or decide if continuing employment is appropriate given your condition.

3. Quitting.

This is the absolute worst thing you could do. If you quit your job, you will lose your LTD benefits entirely. If you are struggling, talk to management or HR or take some time off to recharge. I understand how frustrating it can be to fight through a disability, but giving up will only hurt your future prospects.  

4. Taking a lower paying role or reduced hours. (LTD Only)

In my experience, most people want to help, especially if you’ve been an asset to your workplace over the years. That being said, attempts to accommodate may actually lower your LTD benefits which are based on your recent pay.

If a lower paid position or reduced hours are being discussed, you need to start the disability claim process. Most disability policies have part time work or reduced employment clauses that allow you to continue doing some work while receiving benefits to compensate for your lost wages. 

If your only wage protection is SSDI, then it might actually benefit you to work longer as it will increase your AIME score. This could lead to a higher monthly SSDI Benefit.  

5. Making assumptions.  

Get the facts!

Ask your employer if they have STD and LTD policies. Then review those policies if they do.

What are the exemption periods?

How long is the benefit period?

Remember, LTD policies range from two years all the way to retirement age.  If your making life changing decision it is imperative you get the facts.  

6. Forgetting to make a cash flow plan.

Walk through the timeline I outlined above. How much will you be making in each stage? What if a step is delayed? Make sure you have enough money saved up.

If you are relying purely on SSDI benefits, you may be waiting up to a year to get a regular monthly benefit and 30 months to qualify for Medicare. That is a long time to go unpaid and pay private medical insurance! 

Plan accordingly. Utilize free wealth management tools like Empower to keep track of your cash, debt, and plan for future expenses.

Disability Insurance Tax Advantages

I’ve learned that it’s not all about the money coming in. There are ways to reduce how much money you spend, especially when it comes to taxes.  

File Federal Taxes as A Blind Person

One tax benefit all blind people should exercise is filing their taxes using the standard deduction for the legally blind. It is higher than the normal deduction, and many tax preparers miss this easy win.  

Check your State, County, and Local Tax Laws

If you become disabled, you may want to look into state, county, and local rules, tax breaks and exemptions. For example, where I live in Arizona, disabled individuals may qualify for a property tax exemption. In my case, this saves me around $2,800 per year, which is significant when extrapolated over the duration of my life.  

Talk to your CPA or do some Google searches. I’ve found benefits when looking for “Tax Exemptions For Disabled Individuals in (state / county / city)” and “Tax Benefits for Veterans in (state / county / city).” Many programs passed for veterans also add blind people as included individuals (another preferable treatment for those of us unfortunate enough to be blind). 

Final Thoughts On Disability Insurance

Hopefully this detailed disability insurance overview of the LTD and SSDI processes is helpful to anyone who is trying to navigate these safety nets.  

If you're already receiving LTD benefits or SSDI or both like me, I strongly encourage you to review your policies. See how much earned income you can get without compromising benefits.

What types of unearned income could you pursue to live more comfortably? And of course, don’t forget to look for any tax breaks you may be eligible for. These laws and benefits have been put in place because society recognizes how difficult it can be just to live our day to day lives, yet alone make ends meet. You should make full use of every benefit you can!  

Thanks to Financial Samurai for hosting this guest post!  If you want to learn more about me, check out my website BlindLuckProject.com, where we discuss all things FIRE and how to make your own luck despite the odds.    

Disclaimers

Please Note: I am not a lawyer, insurance expert, or doctor. I am sharing what I’ve learned from my experience. Your situation, medical condition, and policies may be different than what was available to me. Use this information as a starting point as you plan for your unique situations. All information is as of (2022/1Q2023).

Fraud Notice: I am providing this information in an effort to help those in need to seek and receive the benefits to which they are rightfully eligible. Unfortunately, the disability benefits system has a fraud problem. In response, the process has become slower and more complex. This ultimately hurts the very people these programs were created to help.  

If you know (or suspect) anyone who is improperly collecting disability benefits, I encourage you to report them to the proper authorities so they can be prosecuted for their crimes.  

If you're looking for disability insurance, you can shop around on Policygenius for free.

For more nuanced personal finance content, join 50,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. 

15 thoughts on “How To Get Disability Insurance And Maximize Benefits”

  1. After receiving Medicare Parts A and B, you can also apply for a Medicare Advantage plan, part C. Depending on the Insurance Carrier, you may have little to no monthly premium. Unlike a medical supplement policy, which will cost an additional premium, Medicare Advantage plans add additional benefits onto your already existing Medicare Parts A and B. Normally it will cover dental, vision, as well as major medical coverage. This is vital to look into after you’ve established Medicare A and B. I used to work for an insurance carrier prior to my being unable to work.

  2. Great post Sam/Adam, long term disability, and just insurance in general is often difficult for the lay person to understand, this post is really helpful. I’m assuming that these are Federal Programs and would not vary by state in any way? Super Helpful!

    1. Hi JD,

      No problems. It’s always good to prepare BEFORE needing insurance. By then, it may be too late or hard to navigate.

      For five states, Long-Term Disability (LTD) Insurance is not a government benefit and is not connected to any public benefit program. It is private insurance that you get through a private company.

      To find out if you have LTD coverage through your employer, talk to your Human Resources person. I hope your company provides it!

      See more here for state disability insurance support:

      Social Security Disability is a federal program administered by the Social Security Administration that provides benefits to people limited by total disability. Disability has two programs within it- SSI and SSDI. SSI (Supplemental Security Income) is a program designed to assist low-income individuals who may have never worked, or who haven’t worked enough to earn sufficient work credits for SSDI. SSDI (Social Security Disability Insurance) is funded by taxes, so only adults with a work history (and who have earned enough work credits) are eligible. To receive SSDI, your application must show that you can no longer work in your previous occupation, you cannot adjust to a new work environment, and your disability prevents you from being able to return to work for at least a year.

      A few states do have programs granting employees short-term disability benefits when they can’t work, but only on a temporary basis. This differs from federal Social Security benefits because those programs only grant benefits to totally disabled claimants. Currently, there are 5 states with state-sponsored disability plans that are funded by mandatory contributions made by employees.

      The states that have these programs are California, Hawaii, New Jersey, New York, and Rhode Island. Each state has different eligibility guidelines and details regarding how their programs are administered, including how long you have worked for your employer, how long you must have been disabled before you can apply for benefits, and what percentage of your salary is payable by the benefit plan.

  3. This was a amazing post! Informative and great description of the long and painful process to receive benefits. Had a coworker recently go through the process, and I knew it was a pain in the butt, but didn’t know all the steps!

    1. Thanks Robert!

      It took me a long time to figure this all out, and I had to research many sources some of which I later found to be inaccurate or unreliable. as someone who became blind it was very difficult for me to navigate these programs and the uncertainty of when I might receive benefits was very stressful.

      I hope this post simplifies the process for some people or at least removes some uncertainty for them.

  4. One small note that could mean a big difference: If you have the choice of paying your LTD insurance before or after tax, always choose after. It’s usually only a few dollars difference but significantly lessens tax burden on payout.

    Pitfalls are SPOT ON. It’s so tempting to just want to drop out when things have gone pear shaped, but worth it to persevere for the insurance payments. Get help if you can, even if it’s emotional support only.

    1. Excellent point Craig! in my case I paid for my benefits with after tax dollars which means my monthly benefit is tax free (at least for federal, not sure how states with income tax handle this).

      This has been beneficial for reducing my tax burden on investments.

  5. Worth discussing pitfalls of relying on employer disability insurance vs. getting your own. Typically employer-provided is based on “flipping burgers” – after 2 years if you can do any work, then disability benefits run out

    1. This varies based on the policy the employer offers. in my case I’m allowed to earn up to 95% of my prior income before I’m considered no longer “functionally disabled” my benefit amount would start being reduced after I start making 40% of my prior wage to ensure I don’t make more than the 100% of my prior income due to benefit payouts (they only agreed to insure up to my earning abilities).

      But your point is valid, different policies have different criteria and you certainly want to read the policy your employer offers so you know what’s being offered.

  6. Wow very helpful information! My dad is on social security disability and said it was a long and challenging process to go through. And now I see why! It made a big difference for him when he was approved.

  7. One area not covered here are the significant hurdles disability insurance companies have to a successful claim. Because of the laws, known as ERISA, employer provided insurance is where this most often happens, rather than individual policies. I follow a blog by DCS – Linda Nee, who gives tips on how to manage it.

    My spouse has been on disability for awhile, which is how I know this. Luckily, we had no problems, either getting LTD or SSDI

    1. Interesting point. I don’t know much about the ERISA rules and the challenges the insurance companies have with them.

      do you have any examples of how this might affect a qualified individual who is trying to file a disability claim with their employer provided disability policy?

      1. ERISA is just a law from the 1970s that effectively says that for multi-state employers who self insure an insurance plan and hire someone else to administer it, they are not subject to state laws, and only federal law. And what that means is that it is very hard to challenge their decision in court. Meaning, how you apply for your claim and manage it is very important.

        I’d recommend checking out the blog of Linda Nee who writes about this. I’ve been following her for about 7 years, though I have not signed up for her consulting service. Here’s a post she had about the claims process: https://lindanee.wpcomstaging.com/2021/07/16/biggest-mistakes-made-when-managing-disability-claims/

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