Long-term disability insurance (LTD) policies are designed to replace a portion of the insured person’s income in the event that the individual has to leave work for an extended period of time due to a disability. LTD benefits often do not cover enough of the recipient’s pre-disability income to maintain their standard of living, so in many cases individuals receiving long-term disability benefits because they are unable to work full-time have considerable incentive for coordinating LTD payments with other earnings, especially if they are recovering and able to take on some part-time work. Navigating LTD benefits with other income without jeopardizing the income insurance you rely on can be difficult, however. Some policies allow much greater latitude than others for combining long-term disability and multiple income streams, so it is important to be clear about the exact terms laid out in your insurance documents. When effective, combining long-term disability benefits, other income sources, and consistent financial management techniques can help to mitigate the financial impacts of your condition.
Can You Have Other Sources of Income While on Disability?
Many people seeking long-term disability benefits for the first time have questions about coordinating LTD payments with other earnings. Often there is uncertainty about whether other income is allowed, and if so, what rules apply.
The short answer to most of these questions is that additional income sources are often permitted, but they may have a variety of effects on LTD payments, depending on factors such as:
- The type of income involved
- The amount of that income relative to what the individual was earning pre-disability
- The terms of the specific long-term disability policy
While you are receiving long-term disability benefits, any attempts to combine long-term disability and multiple income streams will usually need to be reported to the disability insurance provider, and in many cases disability benefit payments may be reduced to keep your total income the same. In other words, while you may be able to increase your total number of income sources, you likely will not be able to significantly increase the total amount of income you receive while on long-term disability.
What Income Affects Long-Term Disability?
Long-term disability and multiple income streams can prove challenging to manage, in part because for individuals receiving long-term disability benefits, other income sources are frequently counted “against” the disability benefits via the “offset” provisions incorporated into most long-term disability insurance policies. This situation can be especially frustrating when navigating LTD benefits with other income is not a matter of choice. In order to put themselves in position to trigger their offset provisions, most companies offering long-term disability insurance make it a practice to include terms requiring anyone who applies for LTD benefits to also submit an application for Social Security Disability Insurance (SSDI).
Significance of SSDI Approval for LTD
Many of these SSDI applications are of course denied, especially when they are filed by individuals whose long-term disability insurance policies use a substantially broader definition of disability than the notoriously strict criteria employed by the Social Security Administration (SSA). For those applicants who do get approved for SSDI benefits, the long-term disability insurance company will normally subtract the monthly SSDI benefit amount from the company’s own scheduled benefit payment. In many cases, the LTD company will also seize the SSDI “back pay” that is often provided due to delayed SSDI approvals. Although the application process is vastly different, a similar set of offset provisions typically accompanies workers’ compensation benefit payments. The cumulative effect is one in which qualifying for other types of disability benefits does not necessarily correspond to any increase in an individual’s income.
Coordinating LTD Payments With Other Earnings
Earned income is often not an option for individuals receiving disability insurance benefits, so navigating LTD benefits with other income from work, even part-time work, may not be a concern in all situations. The two factors to consider here are:
- Individual medical condition: Not all conditions that make it unrealistic to maintain a full-time job are equally debilitating. Even the SSA has for some years now set the threshold for “substantial gainful activity” at more than $1,000 per month, implicitly recognizing the reality that one may be completely unable to work at a level that would provide even subsistence income, without being so entirely disabled that it is never possible to do anything for which one might reasonably hope to be paid.
- The terms of the insurance policy: Some policies explicitly provide for benefit reductions, typically calibrated to align with the percentage of their former income an individual is able to replace through part-time work. Others consider any evidence of working ability to be a cause for termination of benefits, so reviewing the terms of your specific policy closely prior to attempting an experimental return to work is critical to ensuring your immediate and future financial stability.
A conversation with a financial planner or disability law attorney may help you to determine how the various factors coincide in your particular situation.
Long-Term Disability and Multiple Income Streams: The Importance of LTD Policy Type
Often one of the most important factors determining whether you can earn income from working while receiving long-term disability benefits is whether your policy defines disabled by reference to your own occupation vs. any occupation at all. So-called “any occupation” disability policies only provide benefits when there is realistically no job whose responsibilities the individual could fulfill on a basis regular enough to maintain employment, even with the assistance of federally-mandated workplace accommodations. Own-occupation disability insurance covers loss of income when the individual covered under the policy is no longer able to continue working in his or her own profession.
How broadly or narrowly a policy defines “own occupation” can also be an important consideration, but one of the main reasons why an own occupation policy may offer an advantage is that this type of policy often offers more generous residual benefits. Although LTD policies do not generally apply the same type of partial disability vs. total disability distinction common to the workers’ compensation regulations in many states, often long-term disability insurance plans do allow for residual benefits, also sometimes called “partial” benefits, when an individual is unable to return to full-time work but capable of contributing to his or her own income in a more limited capacity. As always, the details will depend on the terms of the policy, but overall own occupation policies tend to be less restrictive in their options for coordinating LTD payments with other earnings than is usually the case with any occupation disability plans.
Long-Term Disability Benefits, Other Income Sources, and Financial Management
Navigating LTD benefits with other income is difficult even when additional income sources are a realistic possibility in your situation. The offset provisions in most long-term disability policies make it difficult for an increase sources of income to add up to a greater total income on a monthly basis. For many individuals, however, there is still some value in diversifying to incorporate long-term disability and multiple income streams in their financial planning arrangements, particularly if their LTD benefit period does not run until retirement. Coordinating LTD payments with other earnings can be difficult, however, and requires careful strategy to ensure not only that you are meeting your long-term disability insurance provider’s requirements but also that you are maintaining close communication with the healthcare professionals monitoring your condition. A disability insurance lawyer may also be able to provide support by reviewing the terms of your policy to help you develop a plan for incorporating part-time work as you balance long-term disability benefits, other income sources, and a strategy for securing your financial future.
