If California State Disability Insurance (CASDI) provided sufficient income replacement for all Californians, then the private individual disability insurance market wouldn’t exist in this state. Here are a few reasons where CASDI falls short and private DI picks up.
TL;DR – Key Takeaways
1. There’s a weekly benefit cap
2. There’s a short benefit duration
3. There are limited benefits for business owners and high earners
For W2 employees
The maximum weekly benefit amount that CASDI will pay is $1,357 for a maximum length of 52 weeks. That's a TOTAL potential benefit amount of $70,564.
Most W2 employees may think they are okay with the one-year and $5,428 per month benefit cap of CASDI, but do not actually have a plan to cover expenses during a prolonged illness or injury.
Ultimately, anyone making over $117,520 a year cannot receive adequate income replacement coverage from CASDI. And anyone—no matter their income level—with a prolonged illness or injury can’t receive adequate income replacement from CASDI because of its 12-month maximum benefit.
For self-employed earners
If a self-employed person wanted to opt in to CASDI, they’d be better off purchasing private disability insurance if possible. The numbers below use the net profit shown on an IRS Form 1040, Schedule SE, line 3 or Schedule C, line 31.
According to the EDD, “The DIEC [Disability Insurance Elective Coverage] premium rate for 2021 is 6.84 percent of the first $128,298 of your net income.” And if you net higher than $128,298, your premium is a flat rate of $8,775.58 for a benefit that maxes out at $1,357 a week.
Plus, “DI provides up to 39 weeks of benefits to eligible DIEC participants due to injury, pregnancy, or illness (whether or not it is work related)”—so that’s less than a year of benefits, in fact, for self-employed participants.
For a person who earns $150,000/year, that’s a $750/month premium for a monthly benefit of $5,400 with a one-year benefit period. Compare that to an IDI quote for a 40-year-old 5A male earning the same amount who would receive a $7,220 monthly benefit up to age 67 for almost a third of the monthly premium ($255).
That's a TOTAL maximum potential benefit of $2,339,280 (compared to a total CASDI benefit of $70,564) for a fraction of the price.
CASDI is meant to be short-term income replacement for employees earning around $100,000 annually or less. Anybody who falls outside of those parameters could be eligible for a much more robust individual disability insurance plan. Long-term disability insurance can provide more coverage and protects against the financial risks of a lengthier disability that prevents someone from working.