Individuals who have become disabled through illness or injury and have the opportunity to claim benefits under a private long-term disability insurance policy (LTD) are typically required, as part of the policy terms, to also submit their applications for Social Security Disability Insurance (SSDI) benefits. Assuming the SSDI application is approved, the private insurance provider will often impose an LTD offset by SSDI payments. In these cases, the insurance company reduces their payments to the policyholder by the amount the individual is awarded in SSDI benefits. Unsurprisingly, these common provisions often lead individuals coordinating LTD and Social Security disability to have questions regarding private disability and SSDI interactions. Specifically, many people have questions regarding strategies that individuals who receive both SSDI and private long-term disability can use to maximize the benefits to which they are entitled under SSDI rules and the terms of their individual insurance policies.
Private Disability and SSDI Interaction
Because many long-term disability insurance plans require individuals seeking to claim their policy benefits to file for Social Security disability coverage as well, it is not uncommon for people navigating the LTD claims process to have questions about potential private disability and SSDI interactions. Generally, however, “interaction” is a not-entirely-accurate way of framing the relationship between SSDI and the long-term disability benefits provided under private plans. This is because, while SSDI approval or denial may often impact an individuals’ eligibility for private long-term disability insurance benefits, the reverse is not usually true.
As a general rule, the Social Security Administration (SSA) will neither consider an individual’s private LTD claim decision (approved or denied) in determining an applicant’s eligibility for SSDI benefits. The SSA will also not adjust an approved applicant’s payment amounts on the basis of the income the individual is receiving from their private long-term disability insurance plan. However, the SSA does set a maximum on the amounts individuals receiving SSDI benefits may receive each month as income earned through what the agency considers “substantial gainful activity” (SGA).
LTD Offset by SSDI Payments
Many private long-term disability insurance plans contain provisions allowing the insurance company to reduce the amounts paid to policyholders when the policyholders are receiving, SSDI benefits. While the specifics in any individual case will always depend upon the exact terms of the policy, as a general rule the following provisions are commonly used in private LTD plans:
- The claimant must file an application for Social Security Disability Insurance, either prior to or synchronously with the individual’s claim with the private insurance company.
- If the policy-holder is approved for SSDI benefits, his or her monthly payments from the private policy may be reduced, often but not necessarily by an amount corresponding to the individual’s monthly income benefit from Social Security.
- If the individual is approved for SSDI benefits and receives a lump-sum back payment for SSDI benefits missed over a period of up to a year prior to approval, then he or she may be required to forfeit some or all of the SSDI backpay.
The challenge of SSDI offset provisions in private insurer LTD policies means that calculating long-term financial planning on the assumption that SSDI benefits will likely not result in a significant increase in total monthly disability income, even though it may result in an increase in income sources.
Potential Complications: Types of Offsets in Coordinating LTD and SSDI Benefits
The general rule of thumb regarding the presence of offset provisions holds across many different long-term disability insurance scenarios, including most LTD plans offered through employers subject to the Employee Retirement Income Security Act of 1974 (ERISA). However, the actual framework of the offset may vary slightly depending on the terms of the policy. In addition to the conditions that commonly trigger offset provisions, outlined above, there are also three different types of offset structures:
- Offsets for cost-of-living-adjustments (COLAs): Benefits paid under SSDI are adjusted regularly to account for changes in the cost of living, as the SSA explains. Some private long-term disability insurance plans include similar COLA provisions; many do not. In addition, some private insurance plans will include clauses that increase the amount policy holders owe in offsets in proportion to the SSDI cost of living increases.
- Family benefit offsets or adjustments: Information about these offsets can sometimes be confusing, due to the potentially overlapping nature of the benefits involved. The nonprofit organization United Policyholders explains that, in most cases, benefits that are paid to another member of your household in their own name are not considered “fair game” for offset provisions in a private insurance policy. However, SSDI recipients with dependents in their home may receive additional SSDI benefits to help provide for those dependents, and some private long-term disability insurance plans will include those SSDI dependent benefits in their offset provisions.
- Dollar-for-dollar offsets: Offsets calculated as matched amounts essentially subtract the amount received in Social Security Disability Insurance payments each month from the amount an individual is owed under their private insurance policy. These are the simplest type and generally designed to ensure that policyholders never receive an income greater than the portion of their former income guaranteed under their disability policy. Note, however, that both SSDI dependent benefits and COLAs can also be calculated as dollar-for-dollar offsets, in which case those amounts are also subtracted from the total insurance payment.
Some private disability insurance policies may include more than one of these offset structures, so be sure to review your policy documents carefully. You may also wish to consider scheduling a consultation with an experienced disability lawyer if you have questions concerning how to coordinate your SSDI and LTD benefits.
Who Is Responsible for Coordinating Private Long-Term Disability With Social Security Benefits?
The SSDI offset provision in many private long-term disability insurance policies can be frustrating, especially to disabled individuals who feel that they are being forced to navigate two distinct application processes to receive what often looks like a single benefit. Despite the many complexities involved in the application process, often the specifics will be handled by staff at the private insurance provider, in line with the terms set out in the policy, once the Social Security Administration has made a final determination regarding the individual’s SSDI eligibility.
This lack of administrative responsibility for calculating and coordinating benefit amounts also tends to correspond to lack of personal control over the process, so not all individuals experience the “hand-off” after SSDI approval as a relief. Many people find it helpful to keep their own records regarding payments received and perform their own calculations on a regular schedule.
Final Ways To Coordinate Long-Term Disability With Social Security Benefits
Ultimately, staying organized and proactive can help prevent unpleasant surprises and ensure that any discrepancies are identified and addressed promptly. While the process can feel overwhelming, maintaining clear records, asking questions, and seeking professional legal guidance when needed can make it easier to navigate the interplay between SSDI and private long-term disability benefits. By taking these steps, individuals can feel more confident that they are receiving the correct payments to which they are entitled.
