Long-Term Disability Offsets
If you have a long-term disability insurance policy, you may be surprised to learn how many ways your insurance company can find to reduce the payments it owes you.
Almost all long-term disability policies permit the insurer to use “other benefits” to offset the amount they must pay.
This means that in most cases, the insurance company ends up paying less than the full benefit amount of your policy.
For example, if your policy promises to pay you $3,000 per month, but you are also eligible for $1,000 per month in social security disability (SSDI) benefits, your insurance company may get away with paying you only $2,000 per month.
The rules for offsets can vary based on the specific terms of your policy. If you feel your insurance company is offsetting more than it should, a disability lawyer in South Carolina can review your policy and discuss your options.
Why Can Insurance Companies Use Long-Term Disability Offsets?
An insurance company’s ability to offset your benefits is based on the terms of the policy. The law does not prohibit insurance companies from building offsets into their policies.
Offsets allow insurance companies to offer attractive benefit programs at modest premiums. They know they may never have to pay many of those benefits.
How Do I Know Which Benefits My Policy Classifies as Offsets?
Most insurance policies state that the company will use “other benefits” to offset your long-term disability benefits. Typically, your policy will define “other benefits,” likely in a different portion of the policy, by listing the specific types of benefits that it may use as offsets.
If your policy is employer-sponsored, then it is likely governed by the Employment Retirement Income Security Act (ERISA). ERISA does not regulate which benefits an insurance company can use as offsets.
However, ERISA does require employers to provide employees with relevant information about the policy terms. Your Summary Plan Description should include details about offsets in plain language. If not, you can request this information from your employer.
What Types of Benefits Can Be Long-Term Disability Offsets?
Insurers use many types of benefits to offset your long-term disability benefits. We discuss some of the most common below.
Social Security Disability and Supplemental Security Income
People under age 65 who have disabilities that prevent them from working may collect SSDI benefits. Further, the federal government pays Supplemental Security Income (SSI) to low-income people who can’t work but don’t qualify for SSDI.
SSDI and SSI are common long-term disability offsets. In fact, some policies even permit the insurance company to offset benefits paid for dependent children from your disability payments.
State Disability Insurance
Some states offer their own forms of disability insurance to supplement federal SSDI and SSI benefits.
For example, South Carolina offers a supplement to SSI recipients who reside in long-term care facilities. As with SSDI and SSI, your policy may use state disability payments to offset long-term disability benefits.
Workers’ Compensation Benefits
If you receive a monthly benefit from workers’ compensation, your long-term disability insurance company can likely use at least part of that benefit as an offset. The amount the insurer can offset depends on the specific wording of your insurance policy.
Workers’ compensation can be tricky because it compensates you for medical and rehabilitation costs in addition to lost wages. Benefits based on factors other than your ability to work may not count as offsets.
A disability attorney can help you interpret your policy and determine if the insurance company is using the offsets correctly.
If an accident caused your disability, you may obtain a settlement or judgment in a personal injury lawsuit. Typically, insurance companies can use at least a portion of such a settlement as a long-term disability offset.
The amount your insurer can use to offset your benefits varies depending on the specific terms of your insurance policy. Generally, however, only funds you actually receive can offset your benefits.
So, for example, if the person you sued doesn’t have sufficient insurance to cover the judgment, your insurance company likely won’t be able to offset your benefits by the full amount of the judgment. Likewise, if a portion of your settlement went to pay attorney fees, the insurance company may not be able to use that portion as an offset.
A number of issues can arise when insurers try to use third-party settlements as offsets. A disability attorney can advise you on whether the insurer is treating you fairly.
If you go back to work after becoming disabled, your disability benefits may be offset by any income you earn. Typically, this is a percentage offset rather than a dollar-for-dollar offset. This way, individuals collecting disability have an incentive to return to work.
For example, if you earned $4,000 per month before becoming disabled and are now earning $2,000 per month, many policies would offset your disability benefits by 50%. If your disability benefit was $2,000 per month, this means that it would be reduced to $1,000.
This would give you a total income of $3,000 per month. Even though working would reduce your disability benefits, you would have $1,000 more per month than with disability alone.
What Happens If I Receive Payments from My Policy Before Other Benefits Kick In?
Many of the benefits that may offset your disability payments will not be available to you right away. For example, it generally takes three to five months to get a decision on an SSDI or SSI claim and even longer if your initial claim is denied. If you pursue a personal injury claim, it may take months or years to reach a settlement and receive payment.
If your long-term disability policy has paid you benefits that other disability benefits or an injury settlement later duplicate, you will probably have to reimburse the insurer for overpayments. Your insurer may collect overpayment by:
- Reducing your monthly benefits until you make up the overpayment,
- Collecting a lump sum when you receive your settlement or backpay, or
- Stopping your payments until they are reimbursed.
A disability attorney can help you determine whether the insurer has calculated your overpayment correctly.
What If Offsets Exceed the Amount of My Long-Term Disability Benefits?
Often, long-term disability policies have a minimum amount that the insurer will pay regardless of how much can be offset. Typically, this minimum will be either a dollar figure (e.g. $100 per month), a percentage (e.g., 5% of your benefit amount), or some combination of the two.
Nevertheless, insurers are not required to provide a minimum monthly benefit. You will have to read the terms of your policy to determine what you’re entitled to.
How Do I Make Sure My Insurance Company Treats Me Fairly?
The way insurers use and calculate offsets can vary from policy to policy, and you may struggle to wade through the legalese typically found in insurance contracts. Insurance companies have an advantage over policyholders who don’t have in-depth knowledge of the insurance industry.
At Peace Law Firm, we are passionate about giving individuals a leg up when dealing with big insurance companies. Attorney John Peace has more than 15 years of experience working with ERISA, disability law, and insurance issues.
He can review your policy and make sure that your insurance company is calculating your offsets correctly. Contact Peace Law Firm today for a free consultation.