Effect of LTD Insurance

Your long term disability benefits can affect your Social Security disability payments and vice versa.  It is difficult to set out specific rules about this because the terms and conditions of LTD policies vary, but here are some general concepts:

LTD and SSI

If you are collecting LTD benefits and you then apply for SSI (Supplemental Security Income), there is a good chance that your SSI benefits will be offset partially or completely by your LTD benefits.  SSI is a welfare program and except for a few limited exceptions, other sources of personal or household income can result in an offset.   Usually your LTD benefits will be higher than  your possible SSI recovery but it is unlikely that you will be able to collect both, or collect a lump sum past due benefit from SSI.   Your LTD plan administrator and/or your Social Security attorney should be able to offer specific advice about your situation.

LTD and SSDI

Usually, LTD benefits will not offset SSDI.  This is because SSDI does not offset other sources of non-employment income.  However, many LTD policies – especially group policies – provide that your LTD benefit will be reduced, dollar for dollar, by whatever SSDI benefit you receive.  In other words, if your LTD benefit is $1,500 per month and your SSDI benefit is $1,800 per month, your LTD carrier will send you only $300 per month once your SSDI is approved rather than the $1,500 you had been receiving previously.

Further – and this is a nasty surprise for many LTD recipients – many LTD policies provide that you have to repay the LTD carrier any past due SSDI benefit you receive.   Several years ago I spoke to an LTD underwriter about this and his point was that LTD premiums are priced with the assumption that most LTD claimants will also file for Social Security disability.  Since a past due (lump sum) benefit represents monthly payments from previous months, the LTD carrier is merely recovering that to which is it contractually entitled.

Generally LTD carriers do not ask you to pay your attorney’s fees (the contingency fee that Social Security lawyers like me charge is a percentage of past due benefits), so you won’t be asked to pay back money that you never received.  However, if you are not expecting this demand for repayment, it can be very upsetting to receive a check for $30,000 representing past due benefits, then a letter two days later from an insurance company asking you to mail them this check.

Some individual (not group) LTD policies do not have an SSDI reimbursement clause.   You should read your policy and speak to your plan administrator if you have questions about this.

One other point – you may wonder why you should bother even applying for SSDI if the LTD carrier appears to be the primary beneficiary of your efforts.  There are a couple of reasons:

  • many LTD policies do not include any cost of living increases, while SSDI usually does
  • eligibility for SSDI will also make you eligible for Medicare as of the 25th month following your first SSDI payment
  • LTD carriers are more likely that SSDI to try to cut you off.  If they are successful you still have your SSDI
  • 2 payment sources are better than one – while I am not aware of any LTD carrier default and SSDI seems to be fairly stable, you never know what may happen in years to come