Unfortunately, there is a common surprise for claimants who have been approved for long term disability ("LTD") benefits through an employee group benefit plan. LTD benefits are usually subject to a list of offsets that will reduce the amount that a claimant receives in disability insurance benefits.
One of the most frequent offsets is when a claimant is approved for Social Security Disability Insurance ("SSDI") benefits. When a claimant receives both LTD insurance benefits and SSDI benefits, the claimant's LTD benefits will be reduced by the amount that they receive from the Social Security Administration.
For example: assume a claimant has been approved for LTD benefits and receives $2000 per month. If that claimant has also been approved for SSDI benefits at $1500 per month, then the claimant's LTD benefits will be reduced to $500 per month. The net effect is that the claimant still receives $2000 per month - the amount they were owed under the long term disability policy - however, the monthly long term disability benefit is now much lower.
The most significant result of this offset occurs when a claimant has been approved long term disability benefits soon after they stop working, but then has to wait for a hearing with the Social Security Administration to determine whether or not they will receive SSDI benefits. In some cases, a claimant can wait two years or longer for a hearing with the Social Security Administration. If a claimant is approved for SSDI benefits at the hearing level, they will likely owe the long term disability insurer for "overpayment" due to the offset provision in their long term disability policy.
Using the example above, a claimant who receives $2000 a month in LTD benefits and $1500 a month in SSDI benefits will owe $1500 in overpayment to the long term disability insurer for every month that they have received both SSDI and LTD benefits. Under this scenario, if a claimant simultaneously received SSDI and LTD for 19 months, then the overpayment due to the long term disability insurer would total $28,500 ($1500 per month multiplied by 19 months). It is worth noting that SSDI benefits have a full five month waiting period from the date the Social Security Administration finds a claimant disabled.
Once a long term disability insurance company realizes that an overpayment is owed, the insurer will likely notify the claimant to make payment to the insurer. The overpayment amount may also include Social Security disability benefits that the claimant receives for dependents. To speak to an attorney about this issue, contact O'Ryan Law Firm.
In addition to benefits received from the Social Security Administration, other common offsets found in group long term disability policies may include:
• Amounts received by the employee or his or her dependents under a pension plan;
• Income from a sick leave or salary continuance plan;
• Retirement benefits;
• Benefits from a Workers' Compensation law or an occupational disease law;
• Disability benefits from any third party when disability is the result of the negligence or intentional tort liability of that third party;
• Disability benefits from any no-fault motor vehicle coverage or motor vehicle financial responsibility act;
• Benefits under the Railroad Retirement Act; and
• Benefits under a local, state, provincial or federal government disability or retirement plan.
*Note: the above list of potential offsets is not exhaustive and each group long term disability policy is different. To find out offsets that may apply to your disability insurance benefits, please carefully review your group long term disability policy.