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disability

Q&A: Social Security disability insurance and survivor benefits

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Dear Liz: My first wife died six years ago at age 60. I was 52 and we had been married 27 years. My wife was on Social Security disability for 15 years before her death. My only dealing with Social Security after her death was to cancel her payments. I received no benefits of any kind. I am now remarried. Were there any Social Security benefits that I failed to request? Is there any effect on my future retirement?

Answer: You may have been eligible for a one-time payment of $255, but that’s likely all.

We’ll assume your wife was receiving Social Security Disability Insurance payments, which are disability checks paid to workers who have enough work credits in the Social Security system. SSDI is different from Supplemental Security Income, or SSI, a need-based federal program for low-income individuals who are disabled, blind or over the age of 65. Survivor benefits aren’t available under SSI, but they are under SSDI.

The rules for SSDI survivor benefits are similar to those under regular Social Security. Survivor benefits typically are available starting at age 60. Survivors who are disabled can begin receiving the benefits starting at 50, and survivors at any age can qualify if they’re caring for the deceased person’s child who is under 16. When you remarry before age 60, you can’t claim survivor benefits based on your first wife’s Social Security record unless the subsequent marriage ends in death or divorce.

Monday’s need-to-know money news

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crop380w_istock_000009258023xsmall-dbet-ball-and-chainToday’s top story: Becoming debt free and staying that way. Also in the news: How to find the leaks in your budget, six ways to become “rich”, and what to do if you need a credit increase.

How to Become Debt-Free — and Stay That Way
It’s not as impossible as it sounds.

How to Find & Fix Your Budget Leaks
Sealing the money drips.

6 ways to become rich without even trying
Well, maybe a little trying.

Need Some Flexibility? 6 Ways to Increase Your Credit Limit
Proceed with caution.

Disability Benefits: How Social Security Decides If You Deserve Them
Deciphering the formula.

Unexpected ways to save on insurance

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Zemanta Related Posts ThumbnailMost ideas for saving money on insurance are pretty shopworn. You know the advice: Raise your deductible. Get discounts. Shop around.

So I was pretty psyched to hear a Certified Financial Planner talk about less common ways that advisors can save their clients money. CFP Mark Maurer is president and CEO of Low Load Insurance Services, which caters to fee-only planners. Maurer recently conducted a webinar that covered ways to save money on the big-ticket policies: life, disability and long-term care insurance.

What I learned:

Beware of riders. Two commonly-pushed riders are “waiver of premium” and “return of premium.” Maurer calls these the “undercoating” of the insurance business; in other words, they’re pricey add-ons that may not have the value you’re told.

Premium waivers allow you to stop paying your premiums if you’re disabled, but you typically have to be totally disabled to qualify (unable to work in any occupation, vs. your own occupation, for example). Some policies have the same definition of disability as Social Security, which is notoriously tough to qualify for.

If you’re really concerned about not being able to pay your premiums, then the solution may be disability insurance, Maurer said. Each dollar you’d spend on a DI policy would likely buy you far more insurance than what you’d get from a waiver of premium rider.

Return of premium also sounds good—the idea being that if you don’t use your long-term care policy, your heirs will get back the money you’ve paid in. These riders come with restrictions, too. Typically you have to own your policy at least 10 years and not have made a claim within those 10 years. Any claims thereafter would be deducted from your heir’s payout.

Again, Maurer suggests asking, “What are you really after?” In this case, it’s money for heirs. Buying a permanent life insurance policy likely will offer a better and more certain payout compared to an ROP rider, he said.

Apply the 80/20 rule to long term care insurance. If you’ve ever had a loved one in a nursing home, you know how shockingly expensive custodial care can be. Those who buy long term care insurance often opt for the daily payout amount that will cover either a private or a semi-private room in their area.

Maurer points out, though, that nursing home costs include expenses the patients would be incurring whether or not they were there—expenses like meals and laundry, for example, that typically account for 20% of the total.

So, one way to reduce premiums is to insure for 80% of the costs. Instead of the $255 a day that the average Florida nursing home costs, he suggests, shoot for something like $200 a day…which typically lowers your premium by, guess what, 20%.

Lifetime benefits on disability insurance aren’t a slam dunk. If you have to be disabled, wouldn’t you rather get checks for life rather than having them stop at age 65, when most DI policies cut off?

Well, of course! But like the riders mentioned above, adding lifetime benefits may not give you all the coverage you think you’re getting.

A typical policy will continue 100% of your benefit only if you’re disabled by age 45 and continue to be disabled until age 65, Maurer said. Those disabled after 45 get a smaller benefit, based on a sliding scale that gives you less the older you are when you become disabled. Someone who’s disabled at 58, for example, might get only 35% of his monthly benefit after age 65.

Is that worth premiums that might be 33% higher? Only you can answer that question, but Maurer, who has two disability policies, has decided against adding lifetime benefits to either.

“I didn’t think it was worth the additional premium,” he said.

 

Friday’s need-to-know money news

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Old windmill in the town of Gorinchem. NetherlandsHow to save big bucks when traveling, preparing for back to school shopping, and what mistakes to avoid when managing your 401(k).

5 Coolest Travel Share Websites
Why pay for an overpriced hotel room when you can have the literal run of the house?

9 Money Management Tips for Newly Employed Millennials
Finally making real money is exciting. But finding ways to save it is vital.

Help with Managing Finances for People with Disabilities
Things to take into consideration when taking care of a disabled person’s finances.

2013 Sales Tax Holidays for Back-to-School Shopping
Find out when your state’s holiday is and what purchases will be tax-free.

The Experts: The Biggest 401(k) Mistakes to Avoid
Important tips on how to properly manage your 401(k).

Are too many people on disability?

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DisabledThe number of people getting disability checks from the government has skyrocketed in the past three decades. The federal government spends more on cash payments to disabled workers than on food stamps and welfare combined.

This trend has drawn some media scrutiny lately. You may not have time to read everything that’s been written, so here’s an overview:

As jobs for people without college degrees have disappeared, many people who lose their jobs wind up on disability. Planet Money reporter Chana Joffe-Walt says in the NPR piece “Unfit for Work” that “disability has also become a de facto welfare program for people without a lot of education or job skills.” Qualifying for Social Security disability means you get about $13,000 a year, plus you qualify for Medicare, the government health insurance program for the elderly. For many who qualify, that may beat a minimum wage job with no benefits. “Going on disability means, assuming you rely only on those disability payments, you will be poor for the rest of your life. That’s the deal. And it’s a deal 14 million Americans have signed up for.”

The rise in people on disability, however, isn’t unexpected or solely the result of the lousy economy, according to a response to the NPR report by a group of former commissioners of the Social Security Administration, which oversees the disability programs. “The growth that we’ve seen was predicted by actuaries as early as 1994 and is mostly the result of two factors: baby boomers entering their high- disability years, and women entering the workforce in large numbers in the 1970s and 1980s so that more are now ‘insured’ for DI based on their own prior contributions,” the commissioners wrote. The commissioners point out that it’s not easy to get government disability and that most people who apply are denied. “The statutory standard for approval is very strict, and was made even more so in 1996,” the commissioners wrote.

Few people on government disability ever go back to work. Private disability insurers do a better job than the government programs of returning people to the workforce, according to this story in the Wall Street Journal. That shouldn’t be surprising, since qualifying for government disability is typically a lot tougher than the standards you have to meet to trigger private disability insurance payments. That means the folks getting government disability checks are often a lot sicker (in fact, one in five men and one in seven women die within 5 years of being approved for government disability). Private insurers are also, shall we say, eager to get people back to work (or at least off their benefits). Yet the discrepancy seems to offend the Journal, which also decided to blame people on government disability for at least some of our current economic malaise in “Workers stuck on disability stunt economy.”

As a taxpayer, I don’t want to foot the bill for someone who could work but doesn’t. But I’m also leary of attempts to paint government disability programs as a refuge for loafers.

Clearly, this is a complicated–and emotional–issue. You’ll be hearing more about it as Congress struggles with the budget and social safety net programs, so it would be worth spending a little time researching the facts.

 

 

“Compassionate review” may lead to student loan discharge

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Dear Liz: We have a family member who recently was approved by Social Security for a complete disability claim. This person will never work again but has an outstanding student loan. The lender has a formal mechanism to apply for loan forgiveness, but is refusing to accept medical documentation of the disability. What appeal process is there and how can we force them to act? Do we need to retain legal counsel and incur additional expense to enforce a legal process and achieve loan forgiveness?

Answer: Federal student loans offer a “total and permanent disability discharge” that forgives outstanding education debt. You can find the rules and an application at DisabilityDischarge.com.

The rules for private student loans, however, vary by lender. Four lenders — Sallie Mae, New York Higher Education Services Corp., Discover and Wells Fargo — offer a discharge for total and permanent disability that is similar to the federal one, said Mark Kantrowitz, publisher of the FinAid.org and FastWeb.com financial aid sites. The Sallie Mae discharge is also provided on loans made through lenders that market the Sallie Mae loans, such as Commerce Bank, Fifth Third Bank and Regions Bank, Kantrowitz said.

Other lenders do not offer such a discharge, but all have a compassionate review process for their private student loans, he said.

“Borrowers in a difficult financial situation, or their family or other representatives, should contact the lender that holds the loan directly,” Kantrowitz said. “The call center staff are not always familiar with the compassionate review process.”

Lenders are generally more likely to cancel some or all of the debt, or at least reduce the interest rate, in a situation that permanently affects the borrower’s ability to repay, Kantrowitz said. They are less likely to make an adjustment when the loan was cosigned and the cosigner is capable of repaying the debt.

“But it varies,” Kantrowitz said. “I’ve seen some cases in which the borrower was military and killed in action where the lender forgave the loans even though the cosigners were capable of repaying the debt. Another example involved a mother whose daughter dropped dead on an athletic field and the mother’s anguish was palpable in the letter to the lender.”

Debt cancellation comes with another issue: taxes. Forgiven debt is typically treated as taxable income by the IRS. Your family member may be able to avoid the taxes if he or she is insolvent, but a tax professional should be consulted.