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Disability Insurance & Survivors' Benefits

It is difficult to overstate the importance to the American people of the Social Security program.  For more than 80 years it has been America’s most successful and broadly supported social insurance program, providing economic protection for people of all ages.  It speaks to a universal need to address family uncertainties brought on by death, disability and old age. 

Social Security addresses these uncertainties by protecting all Americans, but especially our most vulnerable citizens, from falling into poverty, raising standards of living for lower-income workers, and providing financial security to family members of all ages in the event of a worker’s disability or death.

Social Security as Insurance

Most Americans don’t think of Social Security as an insurance program, but they should.  In that context, Social Security protects almost all families, including spouses and children, against a variety of risks that can happen to anyone, risks that often carry with them severe financial hardship.  Those risks include:

  • Disability;
  • Death of a working spouse or parent;
  • Death of a retired spouse or caregiver;
  • Loss of income due to retirement, without adequate personal savings or pension coverage;
  • Outliving a family’s assets and savings; and
  • Erosion of financial assets’ purchasing power during retirement due to inflation.

Two aspects of the Social Security program emphasize the program’s insurance value; they are survivors’ benefits, which provide assistance to the family members of deceased workers, and disability insurance, which provides assistance to disabled workers and their family members.  Both of these programs are funded from Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) Trust Fund. 

About 60 million people, more than 1 in every six U.S. residents, collected Social Security benefits in 2015.  While the vast majority received benefits as retirees and their dependent family members (71 percent), about 11 million disabled workers and family members (19 percent) received disability benefits, and 6.1 million individuals (10 percent) received benefits as the survivors of deceased workers.

In 2015, about 167 million workers earned life insurance and disability protection by making Social Security payroll tax contributions.  Currently, about 96 percent of people aged 20-49 who worked in jobs covered by Social Security in 2014 have earned life insurance protection through Social Security.  About 90 percent of people aged 21-64 who worked in covered employment in 2014 are insured through Social Security in case of disability. 

For a young worker with average earnings, a spouse and two children, that Social Security protection is equivalent to a life insurance policy with a face value of $612,000.  That same young worker would need an insurance policy with a face value of $580,000 to provide the same protection from disability that is provided by Social Security.[1] 

The risk of disability or premature death is greater than many people realize.  Of those recently entering the workforce, about one in three will become disabled or die before reaching their full retirement age.[2]

Disability Insurance

Disability Insurance provided through Social Security is the government’s largest income support program for the disabled, providing monthly cash benefits to workers who sustain severe, long-term disabilities.  People with disabilities can qualify for benefits under several categories of assistance.  Those categories include:  disabled workers, based on their own employment histories; adult disabled children who are dependents of disabled or deceased workers and retirees; and disabled widows and widowers.

Although the average monthly benefit in 2016 of $1,166 is modest, individuals with disabilities depend on Social Security for a significant proportion of their income.  DI benefits serve as the main or sole source of income for about 80 percent of beneficiaries.  About one in three has no other source of income.  Given the limited availability of other kinds of income for disabled workers, DI plays a vitally important role in keeping these individuals and their families out of poverty.  It is estimated that without DI benefits, half of beneficiaries would live in poverty; even with benefits, about one in five beneficiaries live in poverty. 

Recent Legislation

For a number of years, the Board of Trustees of the Old-Age, Survivors, and Disability Insurance Trust Funds had projected that, in 2016, the DI Trust Fund would be depleted and that benefits for the disabled might have to be cut by as much as 20 percent.  The National Committee testified before the Ways and Means Committee of the House of Representatives in February 2015 that this shortfall needed to be addressed immediately, and we are pleased to be able to report that the Congress enacted legislation, “The Bi-Partisan Budget Act of 2015,” which restored the financial soundness of the DI Trust Fund for the next 7 years. 

We applaud the Congress for taking this vitally important action, because doing so was so important in reassuring the 11 million disabled workers and their families receiving DI benefits that they would continue to be paid.  This legislation includes a number of additional provisions affecting the DI program, and the National Committee will be following the implementation of these issues, mostly having to do with demonstration projects that are to be conducted in the next few years, closely.     

Survivors’ Benefits

Social Security survivor benefits play a critical role in protecting the financial security of American families.  Younger Americans face roughly a one-in-five chance of dying before reaching age 65.  Today, Social Security pays monthly survivors’ benefits to 6.1 million Americans, including almost two million children.  Survivors’ benefits, which are paid to a deceased worker’s family, can help with financial difficulties that sometimes follow a worker’s death by providing continuing cash income.

The value of this protection is substantial.  In fact, the value of Social Security’s survivorship benefits is typically higher than the value of most individual life insurance plans. As mentioned earlier, the value of Social Security survivors’ benefits for an average wage earner who dies and leaves a spouse and two children is equivalent to a $612,000 life insurance policy.  The average Social Security payment for this same family is about $2,647 per month.  In addition, Social Security payments increase based on the annual cost-of-living index to help these families keep up with inflation, while the value of life insurance does not. 

Conclusion

Since its inception decades ago, the Social Security program’s system of protections for American workers and their families have served as a vital lifeline for beneficiaries and their families.  Although modest, these benefits keep families from poverty when one of the family’s principal breadwinners has died or becomes disabled. 

Protecting, strengthening and expanding the benefits provided by Social Security is the principal goal of the National Committee, and we will continue to work to assure that these vital programs continue to offer the protections that have made it America’s most beloved social insurance program.

                                                                                    Government Relations and Policy, March 2016



[1] Social Security Administration, “The Present Value of expected Lifetime Benefits for a Hypothetical Worker Dying or Becoming Disabled at Age 30,” Memorandum from Michael Clingman, Actuary, to Alice H. Wade, Deputy Chief Actuary, November 5, 2014.

[2] Johanna Maleh, Robert Baldwin, and Jason Schultz, “A Disability and Death Table for Insured Workers Born in 1994,” Social Security Administration, July 2015, Actuarial Note No. 2014.6.



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