Social Security Disability Insurance and Long Term Disability
Life can get pretty complicated for the disabled. Especially if you are also receiving benefits from a employer-provided group long-term disability plan. Most group long term disability policies require that you pursue social security disability benefits. Moreover, these policies require that you reimburse the insurance company from the back benefits of any social security disability award. Put simply, the Long-Term Disaiblity (“LTD”) insurance carrier wants to recover moneys that they have paid you, as well as limit how much they have to pay in the future.
In our experience most of our social security disability clients appreciate their long-term disability insurance company and the benefits they are providing, and are happy to pay the insurance company back if they get social security disability. However, many find their LTD insurance carrier is just a little too aggressive in “assisting” them. Once you have filed your claim for social security disability, your long term disability insurance company will probably tell you that if you hire their social security disability attorney or representative to help you get social security disability there will be”no charge” for the social security disability representative’s services.
Free is good; why would you not use the insurance company’s lawyer in your social security disability case? Because, your insurance company has told you a half truth. Due to the fact that you must reimburse your insurance company from social security disability back payments, by choosing their social security lawyer you save NO MONEY yourself; But you do save the insurance company money! Let’s explain.
In order to understand what is really going on, you need to understand the basics of your group long-term disability policy. You should request a copy of this policy if you do not have it. There are, however, several features that are uniformly a part of the group disability plans:
The Offset for Social Security Disability Benefits
Perhaps this is one of those terms you have heard but are not quite sure about. Absent unusual circumstances, your group long-term disability benefits will be reduced by the amount of social security disability that you receive. So for example, if you are eligible for a LTD policy benefit of $1000 per month, but also receive $600 in social security disability benefits (not adjusted for COLA) per month, your LTD will only pay you $400. This is simply enough, and works easily enough if you get your social security disability about the same time as you start receiving your LTD benefit. But the massive delays in securing a favorable social security disability award have created complications. If you are like most Americans it may take two years to finally win your social security disability benefits. In our above example, the insurance company would have to pay you the full $1000 a month, since you were not yet getting your social security disability. As you might imagine, insurance companies did not like holding the bag as they waited for the government to pay a legitimate social security disability claim. To deal with this problem, LTD group disability policies started offering a pay me now, or pay me later option: (i) reduce LTD benefits in the amount of the estimated social security disability benefit (i.e., the social security benefit the government should; be paying) or (ii) require their insured to pay the insurance company back when they finally get their social security disability. As you might imagine, most disabled choose the pay later option (after all, monthly income is down considerably. To document this obligation, the insurance company typically requires the signing of a Reimbursement Agreement.
The Reimbursement Obligation
For many on LTD benefit, the reimbursement obligation means one thing: all the money in social security disability back benefits goes to the insurance company. THIS IS NOT TRUE. In most cases, your long-term disability carrier has no right to the part of your social security disability benefits that represents the Cost of Living Adjustment (“COLA”). Over time, the social security beenefits COLA is very significant.
You can take control of this important decision. We have worked with all the Long-Term Disability carriers over our 25 years, and we are well known to them.