How to Insure Your Income: Insured Status
In addition to meeting the eligibility requirements of an employee and paying Social Security taxes, eligibility for Social Security benefits is determined by your insured status. This is based on your quarters of coverage for Social Security tax purposes.
There are three forms of insured status, which determine eligibility for certain OASDI benefits:
- fully insured;
- currently insured; and
- disability insured.
Fully insured status results in eligibility for most Social Security benefits. These include retirement, survivors and disability benefits (assuming the worker is also disability insured). To achieve fully insured status, you must have paid Social Security taxes for a total of 40 calendar quarters or 10 years.
A calendar quarter is the three-month period ending on the last day of March, June, September and December. A quarter of coverage is not related to the time that a person works, but rather earnings received within the work period. This can create some complexity.
Example: In 1995, a worker was credited with a quarter of coverage for each $630 of earnings -- to a limit of four quarters during that year. Bill worked for a few months in 1995 and earned $2,000. He was credited with three quarters of coverage for Social Security purposes ($630 x 3 = $1,890).
Whether Bill worked 40 hours a week or four hours a week is not the determining factor. The factor that determines the quarter of coverage is the earnings of at least $630. Thus, $2,000 of earnings results in three calendar quarters of coverage.
The earnings figure is an indexed or adjusted figure, which changes annually due to increases in wages. Thus, in most years, the earnings figure will be higher than the year before -- and, consequently, the requirements for a quarter of coverage will be higher.
There is a second method used to determine fully insured status. You are considered fully insured if you have at least six quarters of coverage , plus one quarter for each year elapsing after 1950 or, if later, the number of years since you turned 21.
Currently insured status is achieved if you have at least six quarters of coverage during the 13-quarter period ending with the calendar quarter in which a Social Security claim is submitted. The six calendar quarters need not be consecutive, but simply six quarters of covered employment during the 13 month period.
If a worker is only currently insured, Social Security benefits are limited to monthly survivors benefits for eligible dependents of a covered worker, and a lump sum death benefit of $255. A worker who is currently insured and dies without eligible dependents is not eligible for benefits as a currently insured individual.
Example: Sarah dies at age 64. She has only achieved currently insured status during her brief working years. She leaves no minor children or dependent parents -- and her husband died five years earlier. The family applies to Social Security for the $255 lump sum death benefit.
Social Security will deny this claim, because the lump sum death benefit will not be paid to a currently insured person without eligible dependents. (In this example, even if Sarah had been fully insured, there would be no benefit payable, since she had no dependents.)
Disability insured status involves two requirements:
- you must be fully insured; and
- you must have at least 20 quarters of covered employment during a 40-quarter period ending with the quarter in which you filed a disability claim.
Although this eligibility may appear somewhat complicated, it really isn't for most individuals. If a 40year-old person has been working steadily during his or her adult life, then he or she will be disability insured.
A total of 10 years of employment in which Social Security taxes have been paid should result in a worker being both fully insured and disability insured.
Those who may have difficulty achieving disability insured status are younger workers who may only be currently insured and haven't been paying Social Security taxes long enough to be fully insured. However, there are special rules that cover this situation.
