I’m sure you've watched the news, saw the pictures, heard
the stories and rode that emotional roller coaster for the past week or
so. If you’re like me, I was glued to
the TV the day of the
In so many ways, their journey has now just begun for the
victims.
Fundraisers only go so far.
For many, this event will likely be their first experience dealing with
Social Security and disability insurance.
Those injured may not be able to return to work at all. And for many, it will be quite a wake up call
trying to collect.
In order to qualify for Social Security, the disability must
be expected to lead to death or last for more than 1 year. Clearly, those who lost a limb qualify under
the second part of this definition.
However, Social Security will only pay if that person has
accumulated more than a certain number of credits. This means that a person can collect only if
they have paid into the Social Security system for a period of time.
Further, the agency itself states that the length of time to
process a claim can take months, and a recipient isn't expected to get their
first check for at least six months.
Disability insurance, on the other hand, has other factors
to be aware of. Here are 3 major factors victims
and their families need to know.
First, what is the elimination period?
In plain English, how long do you have to be disabled before
the policy will pay? Most people get
disability insurance through their employer, and typically this means 60 – 90
days.
Second, how did the employee pay for the policy?
In the interest of saving taxes today, most people will opt
to have the cost of the insurance taken out pre-tax (just like health insurance
and 401k contributions). In that case,
the disability payments (benefits) are taxable.
If the cost was paid after tax, then the benefits are tax
free.
And third, what is the definition of income?
Different policies define “income” differently. Some count all income earned in an average
month. Others only count “base” income
and exclude bonuses, commissions, etc.
Take for an example, someone who makes $5,000 per
month. Their disability policy pays 60%,
but the premiums were paid pre-tax. And
they are in a 25% tax bracket.
That means that their disability payment would be only
$2,250, calculated as follows:
Gross income - $5,000
60% benefit = $3,000 ($5,000 times 60%)
Less: 25% taxes = $750 ($3,000 times 25%)
Net benefit = $2,250 ($3000 minus $750).
That’s less than half of the original income!
Let’s take another example using the same figures. This time, assume that half of the income is
from commissions, which are not included in the calculations.
Gross income - $5,000
Exclude commissions - $2,500
60% benefit of “base” income – $1,500
Less: 25% taxes - $375
Net benefit = $1,125.
If you are used to earning $5,000 per month, could you pay
your bills on just over $1,100 per month?
Hopefully, this situation never happens to you. I personally can’t even imagine how life will
be going forward for the victims.
When was the last time you checked your disability insurance
policy?
And could you make it 3 – 6 months without pay before you
see a dime of benefit payment?
Please consider contributing to the One Fund
established for the victims of the bombing.
You can get to the site using this link.
