People who have personal disability policies are not always aware of the additional disability benefits that are available to them. There are five states and one commonwealth (Puerto Rico) that have state disability plans, and the federal government provides Social Security disability benefits.
Most personal disability plans will pay benefits in addition to these supplemental benefits. There is also an additional benefit in the form of “waiver of premium” that may be included with a life insurance policy. This article will provide some information about these areas.
State disability
Typically, if you are a corporation, you will be covered for state disability unless you opted out for yourself. You can secure this coverage when you are not a corporation, but you will have to consider the cost factor versus the benefit provided. The five states that offer state disability are California, Hawaii, New Jersey, New York, and Rhode Island, and the commonwealth is Puerto Rico. Benefits are not the same for each.
As an example, this is how California provides benefits: you must submit an application after nine days and before 49 days from the beginning of total disability. They consider total disability under the “your occupation” definition. As of January 1, 2021, the maximum benefit of $1,357 is paid weekly after a one-week waiting period for up to one year ($70,564 maximum). Earnings are considered five to 18 months before the claim start date, and you must earn at least $29,380.01 in a calendar quarter (approximately $117,000 during four quarters) to qualify for the maximum benefit.
Social security disability
This is another monthly benefit provided by the government. For 2021, the maximum monthly benefit is $3,148, which is $37,776 per year. If you have one or more children under the age of 18, that’s worth about 50% more in terms of a monthly benefit, but there are variables to this amount that you can confirm by communicating with the government. The definition of total disability is much more restrictive than the typical personal or group disability policy. There is a five-month waiting period, with benefits being paid until Social Security retirement age, which is 65 and older.
Many groups and associations will consider monthly benefits collected from state disability or Social Security disability as an “offset” and will deduct that monthly benefit from the gross monthly benefit. If you collect from state disability, you cannot also collect workers’ compensation disability—it’s one or the other.
There are other supplemental benefits available from some disability carriers that pay an additional monthly benefit if you have a particular type of disease, such as cancer or Alzheimer’s, but these additional benefits are confined to very specific medical conditions. You pay an additional premium for this type of benefit.
Waiver of premium in life insurance policies
This is an optional benefit for which you pay an additional premium. It is more often found in “cash value” or equity type of policies as compared to “term” policies (those that do not have equity). These policies should always be investigated to see if there is a source of additional premium savings. Most of the policies issued have a “two-year your occupation” definition for total disability and changes thereafter to “any occupation based upon your education, training, and experience,” and often have a six-month waiting period.
On rare occasions there is a “your occupation” definition for the entire policy period. If a term policy is convertible to a cash value policy and the waiver of premium provision is used, that can have a significant financial effect. I can recall one situation in which my surgeon-client converted his term policy under the “your occupation” definition for total disability to a “cash value” policy and had the entire premium waived, which in this case was approximately $40,000 annually. After one year with the cash value increase and dividend paid, his “money well” increased by that same amount and more over time. This in essence acted as an additional type of retirement plan for him.
A disability claim consultant can give you advice regarding additional benefits to make sure you are maximizing the total disability benefits that are due to you.
ARTHUR L. FRIES, RHU, is a disability claim consultant providing advice on a national basis. He is located in Nipomo, California, and can be reached at (800) 567-1911 or [email protected]. His website is afries.com.
