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The modern gig economy, dependent on contract workers, provides flexible work for millions of people, but only as long as those people are able to show up. No job, no pay, no benefits.
Disability Insurance For Gig Workers
More traditional part-time workers may face a similar situation. As the economy booms, the demand for seasonal workers is on the rise. Retailer Kohl’s announced it will increase holiday hiring to 90,000 people this year, and Target will hire 120,000 people this year — up from 100,000 in 2017. Most of those workers also won’t be eligible for company benefits.
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Most part-timers have one advantage over freelancers: access to workers’ compensation benefits, as long as they receive a salary and have taxes deducted from their paychecks. On the other hand, companies are generally not required to provide workers’ compensation coverage to independent contractors. If these workers are injured on the job, they may have little recourse. Some very small companies are also exempt from this requirement. One way to verify your options is to check with your state, as requirements vary. Here is a resource from the National Federation of Independent Business. However, the Social Security Administration (SSA) estimates that one in four 20-year-olds will be disabled before age 67.
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Nationally and in some states, there has been some discussion of — though not much movement toward — a system of “portable benefits” that would follow individuals across their variety of gig jobs. This would provide a much-needed safety net to survive a business interruption. According to the 2015 Federal Reserve Board survey of households, 53% of adults do not have a rainy day fund that can cover them for three months of living expenses. Almost half reported not having enough money to cover an emergency expense of $400.
Until such a system is implemented, it’s good to know that there is already a program designed to help today’s part-timers and gig workers: the Social Security Disability Insurance (SSDI) program. SSDI is income replacement insurance for disabled former workers offered by the Social Security Administration. To be clear, this “insurance” is not something you have to sign up for or buy. If you pay FICA or self-employment taxes, you’re already paying and on your way to coverage. Workers who earn at least $1,360 (in 2019) per quarter receive credit toward their disability insurance. Typically, you must have paid FICA payroll or self-employment taxes for five of the past 10 years to be covered.
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SSDI benefits are portable—available if you meet eligibility requirements, no matter how many different companies you’ve been employed by.
When someone experiences a severe disability that prevents them from working for 12 months or more, SSDI also unlocks other important benefits, such as Medicare before age 65, dependent benefits and back-to-work support. SSDI continues until the individual is able to return to work regularly or until retirement age, when old-age benefits begin. It has the added advantage of protecting future retirement benefit income.
Although more than 2 million people apply for SSDI benefits each year, doing so is ultimately a personal decision. The experience is different for everyone. Work history, education, age, and mental or physical conditions can affect the SSDI process and your outcome.
To qualify for benefits, you must meet work history requirements and be able to prove that your condition prevents you from working. Provided you meet the SSA’s requirements, SSDI is an extremely valuable resource to consider if you experience a disability without private long-term disability insurance or workers’ compensation protection.
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SSDI is a huge advantage of a more standardized gig economy. Drivers for companies like Uber and Lyft work “on the books,” meaning they must file taxes each year as self-employed workers, which includes payroll taxes. In addition to breaking the law, individuals who work side jobs for money without reporting to the IRS will not qualify for Social Security programs such as SSDI.
These FICA deductions can be a large amount of any paycheck, but they’re especially important for gig, part-time, contract, and seasonal workers who have limited options to protect themselves and their families. them if they cannot work due to a disability.
No matter which — or how many — companies you work for, SSDI can be there to catch you when things take a turn for the worse.
This article was written by and represents the views of our contributing advisor, not the editorial staff. You can check advisor records with the SEC or with FINRA.
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Mike Stein, assistant vice president of strategy and operations planning, has 25 years of experience helping people with disabilities through his work with Allsup. He oversees claims operations for both Social Security Disability Insurance representation and the Disabled Veterans Appeals Service for veterans. During this time, he has become an authority on the SSDI application process, as well as on Social Security Administration programs. Gig workers make up a growing portion of the workforce. During Disability Insurance Awareness Month, it’s important to understand the opportunities presented by the gig economy.
Your client’s health, occupation, and earned income are the three pillars of the traditional disability insurance underwriting process.
Health is clear – does your client have a prior medical history that could affect the ability to secure disability insurance coverage? Things like musculoskeletal issues or mental/nervous conditions they are currently being treated for? What about current medications or chronic problems that are problematic?
The occupation, again, is not difficult to determine. The characteristics of insurance carriers often determine the carrier of choice. Some trucking companies like to write policies for those individuals who shower before going to work, as opposed to customers who shower after returning from work.
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Earned income is the big problem that disability insurance underwriters face with many gig workers. By definition, a gig worker is paid based on the completion of a project or task. They are not paid a salary or hourly wage. These individuals are considered quasi-independent contractors and are not subject to certain labor laws, such as minimum wage or sick leave. Gig workers are required to provide their own health insurance and unemployment insurance and cover the employer’s share of Social Security taxes.
Disability income insurance is intended to provide for an individual’s “earned income.” For the gig worker, income will be determined by net income, after business expenses, but before taxes. For a gig worker with three to four years of history, this wouldn’t cause much of a problem. Stability must be demonstrated, along with strong proof that the gig worker is working at least 30 hours per week.
For a field underwriter, the role of agent is paramount. You will need to collect important data to assist the underwriter. Here is some information that is useful to gather when working with the gig worker.
» Information about the work environment: Current profession and daily tasks; business hours along with where the customer performs most of his tasks; prior work experience.
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Any prior education or training related to gig work. Do they have a contract from the individuals or companies to whom they will provide their services? The provision of this contract will be beneficial to the undersigned.
» Medical information: Is the client currently on medication? Have they consulted a doctor in the last five years? Height and weight information would also be helpful.
Once you have gathered all of this information, you should then share it with an underwriter before receiving an official application. Commonly referred to as an informal assessment, this process will assist with any client conversations you have to help manage any future expectations if you were to submit a formal application.
As always, it’s important to build a strong relationship with your insurance team. Gig workers tend to know other gig workers in their communities. Having the knowledge and confidence to offer these individuals the right income replacement policies opens up a tremendous opportunity for referral business. By its nature, gig work is not full-time. This makes getting insurance more difficult, and certainly more expensive.
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According to Statista, only 4% of millennial gig workers had access to employer-based short-term or long-term disability plans. The figures for large gig workers weren’t much better, coming in at 3% for short-term disability and 5% for long-term disability. Gen X gig workers fared slightly better, but not by much, with 8% having access to short-term plans and 9% having access to long-term disability plans.
The reality is that many of these workers, regardless of their generation, may not have full-time work in the traditional sense and are choosing to work for gig companies—in many cases, multiple gig companies, as surveys have found that more more than 70% of gig workers work for more than one company.