Understand How Your LTDI Benefits are Impacted By Benefits From Other Sources (like SSDI) Long Term Disability Offsets
If you become disabled, long term disability insurance provides you with a percentage of your pre-disability income. But beware, many long term disability insurance policies allow the insurance company to reduce your benefit based on other sources of income. For example, most long term disability policies require that you apply for all other available benefits. These include Social Security Disability benefits, Social Security Retirement benefits, workers compensation benefits, and more. In the event that you receive income benefits from sources other than your LTDI insurer, the insurance company will reduce your long term disability benefit on a dollar-for-dollar basis based on the amount of the other income received. Worse yet, if you fail to apply for these benefits, the insurance company will reduce your long term disability benefit by the amount they believe you would have received had you applied. This comes as quite a shock to many of our clients. Courts have held that such reductions are legal. So what can you do to protect yourself and maximize your benefit income?
3 Steps to Planning for Disability Benefit Offsets
Buy-Up to a Higher Percentage
First, if you have the option, it makes sense to buy-up to a higher percentage of disability benefit payments. Many plans offer the option for employees to pay a bit more in order to receive a higher disability benefit percentage. For example, if your plan pays 60% of your pre-disability earnings and you have the opportunity to buy up to 70% or 80%, it makes sense to do so.
Purchase a Private Policy
Second, if you can afford to do so, you may want to purchase a private long term disability policy that is not tied to your employment. Such policies do not have the same offsets and provide greater legal protections in the event that you become disabled.
Review Your LTDI Policy
Third, review your long term disability insurance policy. Know what other sources of income the plan offsets. Make sure to apply for all applicable benefits. It is frustrating that the insurance company can reduce your benefit based on these other benefits – but it is far worse if they reduce it based on what you could be receiving had you actually applied.
SSDI Benefits Likely Offset LTDI Benefits
Many LTDI policies require you to apply for SSDI benefits. This is because insurance companies are allowed to reduce your LTDI benefit by the amount you receive in SSDI benefits. For example, if your LTDI benefit is worth $2,000 per month, but you are approved for SSDI benefits of $1,500 per month, you may only receive $500 per month from your LTDI company. That said, it is important to keep in mind that even if there is a complete offset (i.e. your SSDI benefits are equal to or greater than your LTDI benefits), many LTDI plans include a mandatory minimum monthly benefit that they must still pay you.
This Offset Can Result in a LTDI Overpayment
Often times, it can take months to be approved for SSDI benefits. As a result, by the time you are finally approved for these benefits, you may be entitled to multiple months’ worth of past-due benefits. These past-due benefits will typically be paid to you in one lump sum, known as “backpay.” However, a large portion of that lump sum must be repaid to your LTDI company if your policy includes the “offsetting” provision mentioned above. This is because your LTDI company will have overpaid you for the months in which you received both your full LTDI benefit and SSDI benefit (in the form of past-due benefits).
Repaying Your LTDI Overpayment
Most commonly, LTDI companies will require you to repay the overpayment immediately upon the receipt of your SSDI backpay. Therefore, it is imperative that you do not spend your SSDI award until you know whether you must repay your LTDI company and, if so, how much you will be required to repay.
If you are dealing with questions regarding offsets to your long term disability insurance benefits, contact us if you would like to discuss your situation or legal rights with a Wisconsin disability attorney.
Please call a Madison disability attorney directly at (608) 257-0040 or a Milwaukee disability attorney at (414) 271-8650, or email us via our Contact Page. To learn more about our Long Term Disability practice, please see our
Long Term Disability blog topics.