How Offsets Can Affect Your Disability Benefits
Individuals who are eligible to receive long term disability insurance should be aware that any benefits received from other income sources could seriously reduce their monthly disability benefits.
Offsets are policy provisions that permit your insurer to deduct other sources of income you are receiving or are eligible to receive due to your disability.
These provisions may only amount to a few sentences in your policy that indicate your insurer is authorized to deduct “other benefits” from your monthly sum. You can often find the details of what constitutes “other benefits” under a separate section of the policy that explains how the offsets will be implemented.
It is important to understand what is considered an offset, how exactly they affect your disability benefits and what potential pitfalls and reductions to expect.
How offsets work
If you are disabled and receiving – or are eligible to receive – benefits from more than one source, offsets essentially make sure these benefits are not stacked on top of one another and creating overinsurance. Instead, the total amount your LTD insurance company is supposed to pay each month will be reduced by the amount you receive or are eligible to receive from other sources.
For example, imagine that you are set to receive $2,000 in monthly long-term disability benefits. Then, you are also approved for $1,000 of monthly Social Security benefits.
Rather than receiving both benefit amounts in full, your SSDI benefits would offset your LTD benefits, and you would collect $1,000 from your LTD insurer.
Common types of “other income” offsets
Social Security Disability
Social Security disability insurance (SSDI) and Supplement Security Income (SSI) benefits are some of the most common types of offsets. SSDI pays monthly benefits to you if you become disabled before you reach retirement age and cannot work.
The Social Security Administration paid an average monthly disability benefit of $1,166 at the beginning of 2016.
State Disability Insurance
Some states have their own disability insurance programs, including California, New York, New Jersey, Rhode Island and Hawaii.
For California SDI claims beginning on or after January 1, 2017, weekly benefits range from $50 to a maximum of $1,173.
If a third party caused the injury that resulted in your disability and you get any sort of settlement, insurers will also consider that settlement an offset to your monthly disability benefit.
Why do offsets exist?
Disability policies have language about offsets to ensure you will receive a percentage of your pre-disability earnings from all sources. This allows the insurance company to pay less money if you are receiving payments from other income sources.
Many disability insurance carriers also argue that offsets help keep policy premiums low.
While many policyholders think offsets may not apply to them – for example, if they are not receiving Social Security Disability, State Disability Insurance, or worker’s compensation benefits – their policy language may state otherwise.
In many cases, you will find that insurers require you to apply for Social Security Disability, State Disability Insurance and/or worker’s compensation, if relevant to your situation. Learn more about what to do when the insurance company demands you apply for these benefits.
Can I get rid of offsets in my LTD policy?
If you have an employer-sponsored disability insurance plan, you will not be able to remove the offset provisions from your policy. This is because the terms of your disability benefit plan have already been negotiated between your employer and the insurance company.
If you have a private individual disability insurance plan, you may be able to negotiate with your insurer, but it is unlikely they will remove or amend the offset provisions.
Insurance companies have no problem selling insurance policies, but are not nearly as friendly when it is time to pay a legitimate claim. Those who believe they are being treated unfairly or cheated due to offsets should contact an expert long-term disability lawyer to ensure they are receiving the compensation they deserve.
If your insurer is reducing your disability benefits, it is essential to review your policy and ensure they are taking the correct type and amount of offsets.
Beware of backpay and overpayments
The insurance claims process – from application to approval – can take a long time.
Processing your application for SSDI or SSI benefits can take an average of three to five months, according to the Social Security Administration.
However, your benefit schedule technically begins as soon as you file, making it common to receive a significant amount of retroactive benefits, also known as backpay, in a lump sum. According to NOLO, Social Security can even pay you for up to 12 months prior to your application date if you became disabled at least 17 months before that date.
When you receive this backpay, it is important to be aware of any overpayments the delay might have caused.
Insurance companies will state they have overpaid you for any months in which you received your full LTD and SSDI benefits, and will often demand you repay them.
The insurer may handle the overpayment in one of three ways:
- Requiring immediate reimbursement in full as soon as you receive the backpay
- Agreeing to reduce your monthly benefit until the overpayment is settled
- Ceasing payment of LTD benefits entirely until the overpayment is repaid in full
If your insurance company is requesting an overpayment be refunded, contact an expert long-term disability attorney to ensure the backpay and overpayment amounts are correct.
Do you have questions about your benefits?
If you have questions about the offset provisions in your disability insurance policy, contact our top-rated long term disability insurance attorneys for a free consultation.
The legal team at DarrasLaw is experienced in handling both individual and ERISA-governed disability insurance claims and can help you understand your coverage, starting with an offset analysis that will explain what your policy should pay.
There is no risk involved in contacting DarrasLaw; if you have individual or long term disability insurance questions, our legal team is here to help.