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The Value of Social Security Disability Insurance

Social security is a social insurance program that provides benefits to offset earnings losses associated with disability, death and retirement. In this AARP Public Policy Institute Issue Paper, Martin Holmer of the Policy Simulation Group contrasts the actuarial value of Social Security Disability Insurance (SSDI), which is the amount it costs to provide these benefits, with the insurance value of SSDI, which is what individual beneficiaries are willing to pay for the benefits. The insurance value – what people will pay – is greater because it takes into account the risk of disability that Social Security protects against. In fact, if individuals are at all risk-averse, Holmer finds that they would be willing to pay a lot more for Social Security's disability insurance protection than it costs the government to provide the benefit. (22 pages)

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