Long-Term Disability Insurance Is a Necessity… and a Scam

As promised, for our ongoing series for Disability Pride Month, I’m explaining long-term disability insurance. Some employers offer this perk to their employees at low or no cost, so you may already have it. For others, long-term disability insurance probably feels like one more thing you “should” have, but don’t have the time, energy, or budget to get. Regardless, you’re going to learn so much today.

I wish I could say you were in for a treat! But you’re not.

You’re in for some kind of savory Jell-O salad.

I thought last week’s explainer on short-term disability insurance sent me to hell. Oh no! From today’s vantage point of the seventh bolgia of Malebolge (within the eighth circle of hell, where fraudulent thieves are ravaged for eternity by vengeful reptiles), I can confidently look back and say, “Aw, that wasn’t so bad!” Get ready to join me!

The idea of long-term disability insurance

Stand still for a moment and let me hit you with a few bullet points.

• One in four Americans has a disability.
• If you’re a working-age adult, you also have a one in four chance of being unable to work for at least twelve months because of illness or injury during your lifetime.
• These numbers are growing every year. (“Umm technically they’re shrinking, because you gave them as ratios…” Shut up, nerd! You knew what I meant!) The most obvious reasons are that humans live twice as long as we did just 150 years ago, and have vastly more sophisticated medical interventions to keep sick and injured people alive.

Of all the catastrophes we insure against, disability is the most statistically certain. A human body is magnitudes more likely to become disabled than a California home to burn up in wildfires, or a Florida home to be swept away by hurricanes.

Given this, the concept of having insurance for disabilities is a no-brainer.

As social animals, humans have a natural instinct to care for vulnerable members of our own species. (Which ain’t even unique. Wolves do it. Chimps do it. Even Encino Man did it!) As intelligent creatures, we have the ability to collect excess resources and organize their equitable distribution. And as capitalists, we must redress a critical gap that sometimes separates one’s ability to work from one’s ability to live.

So it’s a pretty good thing that most Americans already have long-term disability insurance, provided directly by our government.

Is Social Security long-term disability insurance?

Like a cat who innocently offers its soft belly while threateningly flexing its claws, Social Security Disability Insurance (SSDI, or just “Disability”) is a complicated beast. We’re not doing a deep dive into it today—but that’s coming soon, we promise!

Yet in order to gauge if private long-term disability insurance (LTD) is worth your money, you need to have a baseline understanding of SSDI.

Social Security is a federal program that pays people money when they can’t reasonably be expected to go out and earn it for themselves. That includes retirement, disability, healthcare, and caregiving to qualifying people and survivors.

Social Security is nearly universal, with 94% of Americans in paid employment getting coverage. It was instituted by President Franklin D. Roosevelt, the greatest president in American history. (Second place is up for debate, but probably goes to President Bill Pullman.) Social Security basically institutionalized our higher instinct to provide social care. It envisioned an America in which people who couldn’t work wouldn’t starve in the streets. Neat stuff!

Now, SSDI is far from perfect. Key shortcomings include…

• Getting approved is hard. The Social Security Administration (SSA) initially rejects two out of every three claims.
• Appealing is hard. People with cognitive disabilities or physical limitations like fatigue will likely need the help of an advocate or lawyer.
• The framework lacks flexibility. The SSA has stringent definitions of “disability” that do not capture all disability experiences. It offers no coverage for partial or temporary disabilities.
• It’s indirectly expensive. You need a lot of medical documentation to make your case, and healthcare is still very pricey in our country.
• Although SSDI doesn’t have asset limits, Social Security Income (SSI) does. Those asset limits are among the whackest of whack, evil, ableist, vestigial Calvinist garbage laws in existence. Which is a topic for another day…

All that said, it’s a critical national safety net and a godsend for millions of Americans.

Private long-term disability insurance

What we call “long-term disability insurance” is a supplemental private insurance plan. For-profit insurance companies offer it, not the government. (Though the government does regulate some aspects of the plans, which we’ll get to later.)

There are two kinds of policies you might have: individual and group.

Individual long-term disability insurance

Anyone can call State Farm or Mutual of Omaha or whoever and say “One insurance, please!” As with short-term disability insurance, terms vary wildly. You’re negotiating directly with the company to make a plan just for yourself.

But not many people have individual long-term disability insurance policies, and it’s easy to understand why.

Have you ever heard someone say “this singer/golfer/supermodel has their voice/hands/bewbs insured for a million dollars”? That’s individual long-term disability insurance! If America Ferrera—the spokesperson for a toothpaste brand—fell and chipped a tooth, she has a individual insurance policy that would pay her lost income during the time it takes to fix it. The more likely the injury, the more expensive the insurance. People who do dangerous things—like play professional sports—will pay huge premiums for such insurance.

Because it’s expensive and highly individualized, these plans are usually only taken out by high earners in very specialized careers, who don’t want to switch careers if they become disabled.

Imagine a vascular surgeon. She’s trained for years for one VERY specific career. She makes $300,000+ a year, so she can easily afford a $700 a month insurance premium. If a disgruntled petting zoo goat bit one of her wondrous moneymaking fingers off, with that individual LTD insurance, she could still bring in about half of her old paycheck without going through the effort of retraining for a new career.

Non-fabulously-wealthy people can do the same thing—but the math rarely maths in their favor. For one thing, they’re less likely to make enough money to comfortably afford the premiums. Second, they’re not losing other intangible benefits, like years of education or rare natural talent. If the same caprine accident befell a court reporter, he’d also be out of a job. But he can take his generalist associate’s degree and get another similar job fairly easily. It doesn’t make sense for him to pay tons of money to protect his common and portable career skills.

Group long-term disability insurance

Most people who have long-term disability insurance have group insurance through their workplace. So listen up—this probably applies to you!

There’s an obvious puzzle before us. We told you that one in four people will become disabled during their prime earning years. A 25% claim rate is huge compared to other insurance policies like homeowner’s insurance (6%) and auto collision insurance (4%). Yet a long-term disability claim is magnitudes more expensive than, say, repairing one car’s bumper.

So how the fuck do insurance companies stay in business?

Logically, I see only three potential answers:

1. They charge ultra-high premiums to make up the difference.
2. They write the plans so that it’s easy for them to deny claims and weasel out of paying up.
3. Their business model is somehow subsidized by taxpayers.

To my shock, it turns out the answer is usually…

4. All of the above.

Why group long-term disability insurance sucks shit

When I got my first big-girl job, I reviewed my benefits package. When I saw I could sign up for something called “long-term disability insurance” for just a few bucks a month, my heart soared.

I’d just come back from several months of unpaid caregiving. It was emotionally grueling, physically exhausting, and financially devastating. I came home with no savings, no body fat, and no hesitation about accepting the first job offer that came my way.

I’d seen firsthand how sudden and devastating disability could be. The concept of having “disability insurance” put my mind at ease. I thought it meant that if the same thing happened to me, I wouldn’t have to worry about my finances and could instead just focus on my recovery.

But that is not how my insurance plan worked. It’s probably not how yours works, either.

I’ll now explain it to you the way I wish anyone had explained it to me at all, ever.

Your paycheck will be cut in half

Most group LTD plans cover only 60% of your income. Many cover as little as 40%.

Obviously, some money is better than no money. But if my earnings were cut in half, I’d sure as shit lay awake at night, chest tight, wondering how long it would take until my accounts slowly drained into the negative.

Of whatever you do get, you’ll lose a fifth to taxes

Most plans are also what’s called “non-contributory.” (Quick—do you know what that means, without being told? I wouldn’t! Reading the fine print is a great thing to do, but the amount of research and education you need to actually digest that fine print is so unrealistic as to be unconscionable.)

Anyway, it means that your employer paid the premiums using pre-tax dollars. That means your disability checks are subject to income tax. For average folks, a tax rate of 22% means one-fifth of your money is now poof!—gone.

After two years, they’ll boot you out and tell you to get a job

We’ve talked about the difference between “own occupation” and “any occupation” policies.

“Own occupation” asks if you can do your current actual job. For example, let’s say a pilot gets diagnosed late in life with ADHD. That’s one of several mental health conditions the FAA will not allow in pilots, for safety reasons. (As someone with ADHD, I want to say this is ableist and stigmatizing—but I accidentally put a Bic lighter through the dryer recently, so who am I to judge?) That pilot can no longer do their own occupation, and they’d get long-term disability payouts instead.

… For two years.

After two years, the majority of “own occupation” policies switch to “any occupation.”

If that ex-pilot can do any job, the checks stop. Doesn’t matter if the job has nothing to do with what they did before. Doesn’t matter if it pays minimum wage. After two years, as long as you can perform the tasks of a Walmart greeter, you’re dead to them.

Even if you can’t do any job, the plan eventually runs out

If you’re “””lucky””” and your disability makes it completely impossible for you to do any work at all, your coverage doesn’t last for the rest of your life. It doesn’t even last until retirement age.

Instead, most plans expire after five or ten years. Many have abbreviated timelines for mental and nervous disorders, maxing out at only two years. This is totally fair, because as we all know, mental health disorders are a personal moral failure and definitely not the result of heritable traits, chemical imbalances, environmental hazards, and physical brain damage.

[touches earpiece]

Sorry, my producer has informed me that this is, in fact, unfair and completely illegal under the more recent Mental Health Parity and Addiction Equity Act of 2008. I hope someone tells them soon!

Also, does your disability manifest some psychological symptoms, like fatigue? If so, get ready for your insurance company to argue it’s a mental health problem to weasel out of years of fair payments! Yes, they’ll do this even if those symptoms have demonstrably physical root causes, like dementia caused by nerve damage.

Anyway, after that coverage period, your insurance company will send you a termination letter closing with something brutal like “we wish you luck in all your future endeavors.”

And no, you can’t go out and get another policy, because you now have a thoroughly documented preexisting condition! Isn’t this fun?!

They will probably deny your claim

As with short-term disability insurance, the insurance company is the sole arbiter of your claim.

Yes—even though they have an obvious conflict of interest, because by denying your claim, they’re saving themselves tens of thousands of dollars.

Remember how I said SSDI denial rates are pretty high at one in three? Well, private insurers really don’t want to tell us what their denial rates are. But would you be surprised to learn that we know they can be twice as high? Or are you my sibling in cynicism?

If you don’t like it, they’ll meet you in federal court

I mentioned that group plans are covered by something called ERISA: the Employee Retirement Income Security Act of 1974. Now, ERISA did a lot of great things to standardize employee benefits. But it comes with some really wonky trade-offs that feel an awful lot like institutionalized ableism, as well as shocking violations of privacy and even due process.

• If you don’t agree with the insurance company’s finding, you must take them to federal court. You cannot sue them in civil court. Even though that’s literally why civil courts exist.
• You won’t get a trial. Subscribers to ERISA-backed group disability plans will never have a jury trial. Instead, a single judge will read the insurance company’s records, then issue a summary judgement. That means you cannot testify, enter new evidence, or cross-examine anyone to challenge their assertions.
• Your insurance company can legally stalk you to prepare a case against you. They can send private detectives to stake out your house, follow you, and secretly film you. If you muster the strength to take a single bag of trash outside, expect them to photograph you doing it and use it as a pretext to say “See, they’re faking it!”
• You’ll need a lawyer to navigate this process, and they don’t come cheap. Most law offices that specialize in disability advocacy charge one third of your lifetime disability earnings.

For those of you keeping track at home—yes! If you used to make $500 a week, your insurance payout will give you $250, taxes will take another $50, and if you miraculously win a summary judgement in your favor, your lawyer will eat another $65, and you’re down to a quarter of your original income.

Don’t worry. I’m sure lentils will get you out of this dire financial situation.

Private disability insurance mandates you file for Social Security and deducts those benefits from their payout

I hold a single finger up to you, wordlessly begging your pardon to make you wait for just a moment. I gather my skirts and walk calmly out of the parlour, closing the oak-paneled door softly behind me. From the next room, you hear the muffled sounds of inhuman screeching. It somehow contains the human vocal equivalent of a furious string of lashes upon the home-row of a keyboard. The semicolonness of it sends goose pimples running up your spine and under your, uh, neckerchief or whatever. Your empty Wedgwood teacup splits in twain ‘ere the horrible keening ceases. I reenter the room and calmly resume my tale, though my eyes now point almost imperceptibly akimbo.

Let me be super clear on this point…

In order to collect private disability insurance payouts, these private plans mandate you file for government benefits first. They will then reduce their promised payout by whatever you earn through SSDI and/or worker’s comp.

So, let’s say you have a private long-term disability insurance plan that promises to give you $750 a week. When you file a claim, they will require you also file for SSDI. Here, insurance companies will actually appoint a lawyer or advocate to you to maximize your chances of being approved. When you’re approved, if your SSDI payment from the government is $600, your insurance will send you checks for only $150.

This is called an “offset policy.” Again, I ask: if you saw that term in the fine print of a policy description, would you have any idea what that meant without it being clearly explained to you?

This is why I say long-term disability insurance is a scam.

Most people who sign up for these plans would not do so if it was made manifestly clear—in their name, or the description provided by their benefits administrators—that it is partial, exclusionary, temporary, and deceptively piggybacked on completely separate federal benefits programs to which you are entitled by virtue of your labor and your citizenship.

Many, many people are being tricked into paying for something they already own. And that just makes me spitting mad.

I guess this means you think I shouldn’t get long-term disability insurance…?

As with short-term disability insurance, I can’t proclaim what’s right for you.

It could be that your workplace makes it free for you. In which case: why the hell not?

It could be that particulars of your group policy are better than what I’ve described. 99% of plans offset primary and family Social Security disability benefits—maybe the plan offered by your company is in the 1%! (FWIW, it seems this is more commonly offered as a perk to hoity-toity executives. If that’s you, and you’re somehow reading this blog, please consider going away forever. I don’t labor to provide free advice for people who feel deserving of special perks denied to others.)

Long-term disability insurance isn’t completely useless. I’d still take it if it were free, and I’d still rather have a long-term plan than a short-term plan. Doubtless, there are people who have materially benefited from their enrollment. As with our article on pet insurance wayyyyy back in the day, I expect to see some compelling stories in the comments. “I knew someone who got this horrible diagnosis, and had six kids to feed, and her LTD paid out, and she says it saved her life! I would never go without it!” That’s your math to math, and I won’t argue with it.

But I will personally never spend a dime of my hard-won money on a long-term disability insurance plan with terms such as these. Fuckkkkk that.

In my view, the insurance industry—as it pertains to human life, not property—is a beast that has ravished this country for far too long. The vicious self-advocacy of the insurance industry is the primary reason we don’t have universal healthcare in America. And I’m sure they’d be thrilled if Social Security were shrunk, ended, bankrupted, or generally replaced with their private for-profit options.

Here, I must choose to vote with my dollars. I have generalist skills, substantial emergency preparedness, and relative youth on my side. So I am comfortable taking on some risk to starve the beast. That’s what feels right to me.

But I cannot tell you what’s right for your life. You must do you.

Your to-do list

I’ll suggest a few simple tasks to kickstart your long-term disability preparedness plans:

• Read our overview of short-term disability insurance. It covers a few related points I chose not to repeat in this installment.
• Check your eligibility for Social Security benefits. You can do that by creating a Login.gov account and signing in here.
• If your workplace offers a long-term disability insurance policy, read its terms. Last time I suggested a few low-attention movies. My advice this time degenerates into weed and wine. IDK what to tell you, it’s boring as fuck, but you deserve to understand what you’re paying for! In particular, seek to answer the following questions:
  • How much is the premium costing you?
  • What conditions does the plan cover?
  • Does the plan treat mental health conditions differently?
  • Is it “own occupation,” “any occupation,” or a blend?
  • How many years does the policy extend?
  • Is there a cap on monthly or lifetime payments?
  • Will payments be subject to tax?
  • Does the policy offset governmental benefits?
  • Is there no better state-run or individual plan available to you?

We will be back soon with more disability-related topics. Soon. Well, soon-ish. Our stamina is running low. Guys, this topic is so draining and stressful I’ve reserved a Lawson’s Finest Double Sunshine to reward myself. If I’ve helped you understand something you didn’t know before, please contribute to my personal beer fund our highly professional, nonalcoholic Patreon.

I believe in my soul that this work deserves pay; but we will never hide our best advice behind a paywall. We only ask for contributions from readers who are stable enough to afford to support us. Even if it’s just $1 a month, we deeply appreciate it.