If you are disabled and are collecting benefits from either an individual or group insurance disability policy, you’ll be required by your insurance company to apply for Social Security disability benefits. Why? Because insurance companies can reduce the amount they pay for LTD benefits when you collect Social Security benefits. So how does long-term disability work with Social Security disability? At CJ Henry Law Firm, PLLC, we can help answer your questions and provide you with valuable legal advice. Contact us today.
You file a long-term disability claim from your insurance company. The amount of your LTD benefit is $2,000 per month. Your insurance company will require you to file for Social Security LTD benefits. Social Security will pay you $1,500 per month. You will still receive $2,000 per month, but you will receive $1,500 from Social Security and the remaining $500 from your insurance company. The benefit you receive from your insurance company is reduced from $2,000 to $500. Social Security offsets the insurance company benefit by paying the first $1,500. The $1,500 is called the offset.
When you file for Social Security benefits, it could take a year or more before your benefits are approved. While you’re waiting for approval from Social Security, your insurance company will pay you the full amount of your benefit each month. However, as soon as you file with Social Security, your benefits start accruing. Since it takes so long for your claim to be approved, you will receive a large, lump sum of all the past-due benefits.
Your policy’s offset provision means you may have to pay the insurance company the lump sum or part of the lump sum you receive from Social Security. Basically, you cannot be paid two full benefits at the same time. Whatever Social Security pays, the insurance company deducts from its payment. The principle is the same whether you get a monthly payment or a lump sum.
Your insurance company will review the Notice of Award you receive from Social Security and calculate the amount of their overpayment. For example, during the year it takes for your Social Security benefit to be approved, you receive $24,000 ($2,000/month) from your individual or group insurance policy. Your Social Security benefit is $1,500 per month. Your lump sum from Social Security will be $18,000. The overpayment due to the insurance company is $18,000, minus attorney’s fees.
Attorney fees are generally not included in the offset. This essentially allows Social Security disability claimants to obtain free legal representation. This is because the fees are taken out of your backpay (before overpayment is calculated). Every policy is different so be sure to read your plan’s policy carefully. While the insurance company may offer to provide an attorney, it’s probably better to hire your own disability attorney.
There are usually three ways the insurance company can handle the overpayment. First, they may ask for the full amount of the overpayment as soon as your lump sum comes from Social Security. Another option is for the insurance company to reduce your monthly benefit until the overpayment is paid off. Lastly, if you don’t pay the insurance company the offset money, they could stop paying benefits until they have collected the amount of the offset. However, you will probably get a reimbursement agreement to sign and a payment options form. This will allow you to choose to receive a reduced benefit so you won’t owe back pay to the insurance company.
If you receive dependent benefits (for your spouse or children) from Social Security, because of your disability, many policies will let the insurance company offset (deduct the dependent benefits from your long-term disability payment) for these costs as well.
If you receive other types of disability benefits such as short-term disability, worker’s compensation or an award from a court case, most of the time this income is offset by the LTD insurance company as well.
If you purchase an individual policy instead of getting a policy from your employer, you can make choices based on your personal situation rather being part of a group plan. Individual plans may have numerous offsets, or few offsets even for Social Security. Read your policy carefully.
For answers to more questions like “how does long-term disability work with Social Security disability?” contact CJ Henry Law Firm PLLC today. We can help you understand how long-term disability works with Social Security disability to maximize your benefits.