Long Term Disability Insurance-What Did I Pay For?
Most People think that their long term disability insurance policy will replace their income if they are disabled. Most people are shocked to find how the insurance company has structured its policy to minimize the amount it has to pay to a disabled policyholder.
The majority of long term disability insurance policies pay only 60% of a claimant’s salary if disabled. If a claimant works on a commission or other non-salaried basis, the insurance company will use a calculation described in the policy to arrive at a benefit amount.
Partial or Residual Disability
Some policies allow a claimant to work part time or work at a lighter duty job because the claimant is unable to work full time due to their medical impairment. A partial or residual disability benefit is payable if an impairment causes a claimant’s income to fall more than a certain percentage, usually 20-40% below their regular income.
The Social Security Offset
Most policies have a Social Security offset. This means if a claimant receives a monthly Social Security Disability (“SSD”) benefit, the amount of the SSD check is “subtracted” from the monthly LTD check. For example, if a claimant receives a LTD check for $2000 a month and then begins to receive a SSD check for $1000, the insurance carrier will reduce the amount of the LTD check to $1000. The claimant still receives a total of $2000 a month, but $1000 from SSD and $1000 from LTD. Most policies even allow the SSD benefit paid to a claimant for his or her minor children to be taken as an offset.
Other Possible Offsets
Every policy is different, but other possible offsets are worker’s compensation benefits, certain retirement or retirement disability benefits, settlements from lawsuits, and state disability benefits. In the event that the total of the offsets is higher than the monthly LTD benefit amount, most policies have a minimum payment of at least $100 per month or in some cases, 10% of the monthly LTD benefit.
The Problem of Overpayments
Many claimants apply for SSD benefits around the same time they apply for LTD benefits. Included in the paperwork for the LTD application, claimants will find a form that the claimant must sign that tells the insurance company how they will “pay back” the SSD offset. A claimant can choose to have the carrier estimate how much their SSD benefit will be. The insurance carrier will then “deduct” that estimate from the claimant’s monthly LTD benefit. However, most claimants choose another option, which is to pay back the SSD offset in a lump sum, so that the claimant will receive the full LTD monthly benefit. Because it can take as long as 18-24 months to receive an SSD award, a claimant’s SSD back benefits can add up to tens of thousands dollars. Once the claimant receives the SSD award and back benefits, the insurance company will want to recover the full amount of back benefits. Because the claimant has been unable to work and has been getting only 60% of their former salary, many claimants spend their SSD back benefits to pay bills. If a claimant cannot pay back the full amount in a lump sum, sometimes the insurance company will hold back the entire LTD monthly benefit towards the amount of SSD offsets that the claimant “owes.” This problem is compounded when the SSD award arrives just as a claimant hits the “any occ” definition of disability at 24 months, because the insurance company may cut-off benefits when the policy changes, leaving the claimant owing a large overpayment.
If you have questions about your long term disability insurance benefits or Social Security Disability benefits, visit our website at www.DisabilityDenials.com.