Is Your Paycheck Protected If You Get Sick Or Injured?


Insurance
Insurance (Photo credit: Christopher S. Penn)

I just read an article about Disability Income insurance from the New York Times, “Determining if Disability Insurance is Necessary.”  Under normal circumstances, I tend to like the reporting in the Times.

This article, however, I found to be leading and one-sided.  The author scares people into thinking that private disability insurance is bad and Social Security disability insurance is good.

Like the politicians did with “Health Care Reform” he presented an isolated anecdote of an individual whose disability claim was declined as the model for all disability claims.  However, he did not give us all of the details.

Disability insurance is one of the most frequent targets of insurance fraud in America.  It is not unusual for a claimant to fake a disability in order to have an income so they can “play.”

It is likely that the reason why the insurance company that was mentioned in the article dragged things out with paper-work is because they had reason to suspect that the insured was making a false claim.

In the article the author mentions that Social Security is a viable alternative.  That is true if you suffer an injury or illness that is on their list of automatic claim approvals.  However, the article does not mention all of the facts.

FACT 1

Social Security Disability Insurance has a 6 month waiting period.  Before they will pay you anything, you must be out of work for at least 6 months.  During that time, you are still responsible for your bills.  If you have 6 months worth of income is savings you are probably in good shape if you suffer an automatic approval disability.

If you do not have 6 months worth of income in savings, you may want to consider looking for private insurance to cover that time period.

There is no law that prevents you from combining Short Term Disability Income insurance from a private insurance company with Social Security Disability Insurance.

FACT 2

The article fails to mention that less than 40% of disability claims that are received by the Social Security Administration qualify for automatic approval.  More than 60% of them must be reviewed.

The review and appeal process can take up to 3 years.  Although once a claim has been approved, Social Security will make a payment that is backdated to a date 6 months after your disability, you will have to find a different way to pay your bills while you wait.

A few years ago I read about a lady who had to wait for over 2 years for her disability claim with Social Security to be paid.  Finally, she was paid close to $60,000 for her back-claims.  She used the money to buy new furniture for her house, a new care and entertainment centers for her two children.

My point is not that she used the money to better her life.  What I see is that after having to scrimp and claw to maintain a standard of living while the Social Security system delayed, she found a reward.  The problem is that she had to scrimp and claw for over 2 years before she got her reward.

If you are willing and able to sacrifice for 2 years until Social Security Disability insurance reimburses you, there is nothing that you need to do.  However, if the thought of that scares you, there are a couple of options available.

DISABILITY INCOME

This type of insurance can have either Long-term (> 2 years) or Short-term (< 2 years) benefits.  You can elect to have benefits only for accidents or a plan that will pay benefits if you are unable to work because of either an accident or illness.

Disability Income insurance will pay a portion of your salary each month that you are unable to earn an income because of an injury or illness.  It is used in partnership with your Major Medical health insurance.

While Major Medical health insurance helps pay your additional medical bills, Disability Income insurance gives you money to pay your regular bills.

Since Disability Income insurance only replaces a portion of your income, it is unlikely that it will give you much money for entertainment and savings.  However, it will allow you to keep your current standard of living while you are recovering.

If you are thinking about using Disability Income insurance, remember that not all policies are identical.  Make certain to read your policy to make certain that you understand how it works and that it covers what you need.

CRITICAL ILLNESS

Critical Illness policies are much more limited than traditional Disability Income insurance.  Critical Illness insurance policies do not pay benefits for accidental injuries.  If you are “accident prone,” Critical Illness insurance is not the best option.

When you get your policy, it will list specific diseases that are covered.   Most policies will cover cancer, heart attack and stroke.  If you are diagnosed with either of those illnesses, your policy will pay you a “lump-sum” of cash.  You are free to use that money as you see fit.

You can use the money to supplement your Major Medical insurance.  It can be used to pay for deductibles, co-insurance and experimental treatments that are not paid by your Major Medical insurance.

If you do not have to use all of the money to pay for health care, you can set aside what you do not have to use to pay your regular bills.

FINAL THOUGHT

In 2009, one of the arguments in favor of what became the Patient’s Protection and Affordable Care Act was that if the law was passed, people who had health insurance would no longer have to file for bankruptcy protection because of medical bills.

Unfortunately, that promise did not pan out.  The PPACA mandates that all Americans purchase one of 4 “Essential Benefits” plans in 2014.  All of them have deductibles and co-insurance payments that are required by policy-holders.

There is no question that the added deductibles and co-insurance to pay for health-care are tough but the thing that caused middle-class Americans to file bankruptcy “even though they had health insurance,” was not the additional cost-sharing elements of their health insurance.  It was because they had to pay those unexpected medical bills in addition to their mortgage, car payment, groceries, utilities, etc.

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