When you become disabled, you may be forced to deal with a patchwork of benefits, including Social Security Disability Insurance (SSDI), Supplemental Security Benefits (SSI), short-term disability insurance and long-term disability insurance. Short-term disability insurance and long-term disability insurance are nearly always worth pursuing. However, benefit payments under disability policies can complicate payments you receive from other sources, including SSDI and SSI. Below, we explore the complex interplay between private disability insurance and SSDI benefits.
An award of disability benefits from the United States Social Security Administration depends on many factors like your age, education, work history, physical and mental health. It is also critical that you are not engaged in any “Substantial Gainful Activity.” However, your eligibility for Social Security disability is not affected by whether, or not you are insured under a private disability insurance plan. That being said, payment of SSDI or SSI benefits can be used to reduce the amount you receive from your private disability insurance carrier under what’s called a: “Right of Offset.”
So, the United States Social Security Administration will not reduce the amount it pays you, if you also receive a private disability insurance payment. However, private disability insurance carriers will reduce the amount it pays you by the amount of benefits that you receive from Social Security.
Historically, many private disability insurance plans did not have offset rights. Now days, nearly all private long-term disability insurance plans contain provisions allowing the disability insurance company to offset the amount it pays by the amount of money a claimant receives from other sources. This is called a "Right of Offset." This Right of Offset allows a disability insurance company to reduce the amount that it pays to you by the amount that you receive from Social Security. Many times, the private disability insurance carrier's payment will be reduced to as low a $100.00 per month.
It doesn't seem fair. It does not seem right. You may even ask: "Why did I pay those disability insurance premiums for all those years if it only has to pay me $100.00 per month?" To make matters worse, the disability insurer may also have a right under the plan to recover any over-payment that has been made to you. They recover over-payments by reducing the monthly disability insurance benefit that you are depending to an even lower amount.
A right to offset is created in favor of the disability insurance company by its use of language in the insurance plan document. Most disability insurance policies will have a section buried in the fine print of the policy that is titled: “Other Income Benefits.” It's nearly the equivalent of a license to steal and it usually reads something like this CIGNA Disability Insurance policy:
“We reduce this plan’s benefits by an amount equal to any Social Security retirement and/or disability benefits payable to you, your dependents, or a qualified third party on behalf of you or your dependents.”
Many disability insurers will even require covered individuals to apply for SSDI while receiving private benefits. Some wrongly try make the insured use a Social Security Claim Representative firm recommended by the insurance company. No law currently prohibits private insurers from implementing offsets and collecting over-payments from the monthly payment it makes to you. Unfortunately, if the right to offset, or the right to recover over-payments, are in the plan, the disability insurance carrier is allowed to reduce the amount it pays you.
A federal law known as the Employee Retirement Income Security Act provides strict governance for a variety of employee benefits — including disability. Under ERISA, employers must provide workers access to plan documents, like Summary Plan Descriptions, stating each participant's rights and responsibilities, including the right of offset and the right to collect over-payments. However, ERISA provides virtually no protection to the consumer when it comes to an insurance companies right to offset and right to collect over-payments. In short, if it is in the plan document, the insurer, like CIGNA, UNUM, Lincoln Financial, is allowed to do it. A simple coherent overview of ERISA can be found in our previous blog post.
If you have questions about a private disability carrier right to offset its benefit payment, or its right to collect over-payments from you, you need an experienced disability attorney who understands the plan documents. Reach out today to learn more about maximizing your private disability insurance when you also receive Social Security disability.