How Offsets Can Affect Your Disability Benefits
Anyone eligible to receive long-term disability insurance under an employer-sponsored plan or private insurance should know about “offsets,” the reductions in your benefits that can happen if you get other sources of income.
Offsets are provisions in the policy that give your insurer broad permission to deduct other benefits that you are eligible to receive as a direct result of having a disability. These provisions will often amount to only a few sentences in your policy indicating that your insurer is authorized to deduct “other benefits” from your monthly sum. You can usually find what constitutes “other benefits” under a separate section of the policy that explains how the offsets will be implemented.
Whether you’re already receiving disability benefits or are still going through the legal process trying to obtain them, offsets are likely to become an issue. It is important to understand what is considered an offset, how they affect your disability benefits, and what potential pitfalls and reductions to expect.
How Offsets Work and Types of Income That Qualify
If you are disabled and eligible to receive benefits from more than one source, offsets essentially make sure these benefits are not stacked on top of one another, creating a situation of over-insurance. 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.
Some of the most common offsets for “other income” may include:
Social Security Disability Insurance (SSDI)
The Social Security Administration pays monthly benefits to workers that paid a certain amount of taxes into the system and then became disabled before reaching retirement age. SSDI benefits are one of the most common and significant types of offsets. In fact, many LTD policies require beneficiaries to apply for the program and file an appeal if they get denied. It’s common for insurers to deny benefits to individuals that either doesn’t apply for SSDI or don’t exhaust all their appeals.
Keep in mind that, even if your LTD benefits are reduced, you’re still probably in a much better position than if you only had SSDI. Also, getting approved for Social Security benefits is a notoriously long and difficult process. Getting payments from your private or employer-sponsored disability insurance can be a real lifeline during this period.
The Social Security Administration paid an average monthly disability benefit of $1,277 in 2021.
State Disability Insurance
Some states have their own disability insurance programs, including California, New York, New Jersey, Rhode Island, and Hawaii.
In California, SDI can provide up to 52 weeks of full disability insurance benefits totaling up to 55 percent of your earnings in the highest quarter of your base period before the disability. For California SDI claims beginning on or after January 1, 2017, weekly benefits range from $50 to a maximum of $1,173.
These types of benefits are often offered to someone that has become disabled because of injuries they sustained on the job. Employees that accept workers’ compensation will generally forfeit the right to file a personal injury lawsuit. Workers’ compensation serves to include both wages and medical costs.
The logistics of having both Workers Compensation benefits and LTD insurance benefits can become very complicated. For example, some insurance policies will have an exclusion clause for injuries that happen on the job, arguing that this kind of disability should be paid for by workers’ compensation. At the very least, individuals that get approved for both types of benefits will have to navigate some offsets.
Veterans Affairs Benefits
Some disabled veterans receive monthly payments as part of their VA benefit packages. This kind of income will almost always become an offset for your LTD policy.
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? Can I Get Rid Of Offsets In My LTD Policy?
Disability policies have language about offsets to ensure you will receive a percentage of your pre-disability earnings from all the sources combined. This allows the insurance company to pay less money if you’re receiving payments from other income sources. Many disability insurance carriers also argue that offsets help keep policy premiums low. This is why, in many cases, insurers require you to apply for Social Security Disability, State Disability Insurance, or worker’s compensation, if relevant to your situation.
In most cases, it’s not easy to change the offset terms in your policy. If you have an employer-sponsored disability insurance plan, you will not be able to remove the offset provisions because the terms of your plan have already been negotiated between your employer and the insurance company. If you have a private individual disability insurance plan, then you may be able to negotiate with your insurer, but it’s not likely they will remove or amend the offset provisions.
The reality is that insurance companies have no problem selling insurance policies but are not nearly as helpful when it’s time to pay a legitimate claim. Disabled people that believe they are being cheated because of how offsets are being used by an insurer should contact a skilled long-term disability lawyer to ensure they’re receiving the compensation they deserve.
Beware of Back Pay 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 back pay, 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 become disabled at least 17 months before that date.
When you receive this back pay, 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 back pay
- 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 experienced long-term disability attorney to ensure the back pay and overpayment amounts are correct.
The Potential Pitfalls of Double Offsets From SSDI Benefits
Some individuals will be eligible for coverage under two different long-term disability policies. For example, one may be a private insurer while the other is an employer-sponsored policy. In this scenario, it’s important to be aware of the potential issue of “double offsets” once you qualify for Social Security Disability Insurance, which can cause beneficiaries to get less income than they had planned for. This situation can occur because most long-term disability insurance policies are explicitly designed to reduce your payments in response to SSDI.
For example, an individual that qualified for two policies that both pay $1,500 per month would be expecting a total of $3,000 of monthly disability benefits. If that person then begins receiving $800 a month from SSDI, it’s possible for each policy to deduct $800. This “double offset” would mean the insured would end up receiving only $2,200, which includes $800 from SSDI and $700 from each of their long-term disability benefits.
If you have more than one LTD policy, it’s important to review the terms and be aware of how getting SSDI is treated in your specific situation. Take precautions to make sure your insurer can calculate offsets correctly so that they don’t end up wrongfully reducing your income.
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. If you’re having a hard time navigating offsets for your policy or believe your insurance company is reducing your benefits by too much, a skilled disability attorney can review your claim and figure out the best options.
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’s no risk involved in contacting DarrasLaw. If you have individual or long-term disability insurance questions, our legal team is here to help.