INSURANCE 101: Social Security Disability Insurance (SSDI)

Enacted by Congress as part of the Social Security Act of 1935, Social Security Disability Insurance (SSDI) is a federal program that is funded primarily through employer and employee payroll taxes, known as ‘FICA taxes,’ and provides benefits to eligible individuals in the form disability income benefits.

SSDI is available to all working Americans that pay FICA taxes who have qualified as ‘fully insured’ for benefits upon becoming totally disabled.  Benefits are not provided unless an individual qualifies as both ‘fully insured’ and ‘totally disabled.’

An individual becomes fully eligible for Social Security Disability benefits based on his or her Insured Status, which is determined by how many Quarters of Coverage or Credits he or she has accumulated while being employed and taxed under FICA.

One credit can be earned for each quarter in the calendar year that an employee pays FICA payroll taxes, with a maximum annual accumulation of 4 quarters of coverage, or credits, per calendar year, beginning after an individual turns 21 years old.

Average Indexed Monthly Earnings (AIME)
Social Security benefit amounts are based on an individual’s lifetime earnings that were taxed under the FICA payroll tax using an indexed earnings average, called the Average Indexed Monthly Earnings (AIME).  This average, which is computed over a 35 year period of time, reflects changes in wage levels and more accurately accounts for inflation when determining benefits.  This average is used within a formula to determine the individual’s ‘primary insurance amount,’ or ‘PIA.’

Primary Insurance Amount (PIA)
The Primary Insurance Amount (PIA) is the benefit amount that an individual receives when he or she chooses to begin receiving retirement benefits at his or her normal retirement age.  Based on the AIME amount, the PIA determines the correct amount of Social Security benefits for each recipient based on the amount of annual income he or she produced while in his or her working (and FICA taxed) years.

Insured Status (Currently vs. Fully)
An individual qualifies as partially insured, also referred to as Currently Insured, if he or she has accumulated at least 6 quarters of coverage within the last 13 calendar quarters.  The minimum requirement for individuals under age 24 to obtain currently insured status is 6 credits in the last 3 years.  Beginning at age 24, additional credits are required to obtain currently insured status based on the individual’s age at the time of disability.

An individual qualifies as Fully Insured when he or she has accumulated the required quarters of coverage based on their age.

To be fully insured, an individual needs to obtain at least one credit for each calendar year after turning age 21, and the earliest of the following:

• The year before attaining age 62,
• The year before death, or
• The year an individual becomes disabled
• The minimum number of credits needed is 6 and the maximum number needed is 40.  Any year (all or part of a year) that was included in a period of disability is not included in determining the number of credits needed to be fully insured.

Unlike private disability insurance, Social Security Disability Insurance (SSDI) only provides benefits to individuals who are totally disabled, as oposed to partial or short-term disability.  SSDI defines total disability as the inability to engage in any substantial gainful activity due to physical or mental disability and must last at least 12 months or end in death.  Benefits are paid after a 5 month waiting period to ensure the individual is totally disabled.

In addition to being totally disabled, an individual needs to be fully insured and have earned at least 20 quarters of coverage in the last 40 calendar quarters (last 10 years) ending with the quarter in which the disability begins.

A qualified beneficiary will receive 100% of his or her PIA.  In addition, his or her spouse and dependent children under 18 years of age will receive 50% of the worker’s PIA.