Social Security Disability Insurance: Pros, cons & how it compares to long-term disability coverage

Social Security Disability Insurance (SSDI) can offer essential support for people who are unable to work (and therefore earn an income). Especially when 25% of people in their 20s experience a disability for longer than one year before reaching normal retirement age. But the coverage of SSDI may not be enough. And it comes with a considerable amount of limitations and drawbacks. Here's what you should know about this benefit and gaps that may warrant additional protection.

Make no mistake: SSDI can offer a critical safety net for eligible workers who no longer can earn an income due to disability. This federal disability insurance program is funded by the Social Security tax that comes from our paychecks. It offers these benefits:

• SSDI can last until retirement age. If you qualify, you can receive SSDI for as long as you remain disabled. Once you reach retirement age, the benefit automatically converts to Social Security retirement income. 
• Payouts are adjusted for the cost of living. The Social Security Administration adjusts payouts for inflation each year. In 2024, individuals receiving SSDI saw a 3.2% increase. 
• Benefits include medical coverage. SSDI recipients are eligible for Medicare health insurance after a two-year waiting period. Individuals with SSDI may also be eligible for up to an additional 11 months of COBRA coverage. 

Receiving a portion of your income from SSDI can be helpful. Still, the program has limitations, especially if it's your sole source of disability insurance. Evaluating the drawbacks can help you determine if you may need private disability insurance to supplement your income protection plan. Here are some factors to consider:

It's worth noting that only about one-third of SSDI claimants have their applications approved.¹ To qualify, you must meet a work requirement and the Social Security Administration's definition of disability.

• The work requirement is measured using work credits. You gain one work credit for every $1,640 earned. You'll generally need 40 credits to qualify for SSDI, and half of the work credits must be earned within the last 10 years. 
• Social Security's definition of disability requires that you cannot work any job due to an injury or illness. You'll need to prove that the disability is long-term, meaning you won't be able to work for at least one year. SSDI isn't intended for short-term disabilities. 

If your medical condition isn't deemed severe enough or the agency believes you still can work in some capacity, you may be disqualified. Relying on SSDI as your only source of disability income insurance may not provide the protection you expect.

Applicants can file for Social Security disability benefits online, over the phone, at a local office or by mail. Throughout the application process, you'll submit several documents to verify your identity, employment history, medical condition and other factors that will help the agency determine your eligibility. The Social Security Administration provides a checklist to help you gather all required information before you apply.

Once you've submitted your application, it can take up to six months to receive a decision and five more months before you begin receiving benefits. If you don't have savings to cover you for the first year of your disability, you could be in a tight spot financially.

SSDI recipients receive an average of $1,537 monthly as of March 2024. The payout is calculated as a percentage of your average monthly earnings and adjusted for inflation. Certain thresholds or "bend points" are applied to the benefits formula to ensure SSDI covers more for low-income earners than high-income earners.

With U.S. workers earning around $4,472 monthly on average,² SSDI modestly covers less than 40% of the average worker's income. Not only is this frustrating if you're not able to work, it can have a significant impact on your family's lifestyle.

While SSDI has its advantages, it's not the best option for a comprehensive plan. To ensure you'll be able to keep your family comfortable and cover any necessary bills, including increased medical bills associated with your disability, you may need additional coverage. Private, long-term disability insurance can supplement SSDI's gaps. And you can receive payments from both sources.

Compared to SSDI, long-term disability insurance (LTDI) options usually cover more of your income and are easier to qualify for. You also begin receiving payouts sooner. Here's a quick overview of some of the key differences.

While you pay a premium for private disability insurance that you wouldn't for SSDI, the cost may be less than you think. To apply, you'll provide your medical history and take a medical exam. Generally, the healthier you are, the lower your premium.

While SSDI covers a portion of lost income if you're unable to work, there are downfalls to relying on it as your sole source of income. It's difficult for many people to meet the disability definition with SSDI, and applying can take several months.

Private disability insurance may be a wise addition to your income protection plan and could cover up to 80% of your income. With payouts often starting after just 90 days, private disability insurance can give you the coverage you need when you need it. Speak with a Thrivent financial advisor to learn more about disability insurance and determine the right strategy for you.