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.