Clients often ask why Long Term Disability Insurance companies are allowed to deduct their Social Security benefits from disability checks.
The history is complicated, but the answer is simple: most disability policies that are purchased through the workplace include a clause that the LTD benefits will be reduced by the amount of money paid by Social Security. This language can be found in a section of the policy often titled “Offsets” or “Other Income Benefits.” Social Security Disability is the primary offset, although there may be others; it all depends on the language contained with each policy.
If a disabled individual’s children receive Social Security, those funds will be considered for an offset as well, as they are counted as the household’s Social Security benefit.
Frankel & Newfield does not handle Social Security Disability claims.
We do however represent clients who are receiving benefits under their ERISA policies who have applied for Social Security benefits. We educate our clients to be sure that they understand that if they receive Social Security benefits after they have been receiving benefits from their workplace disability policies, they will have to reimburse the insurance company for the offset – – as soon as they receive their back pay of Social Security benefits.
This is a huge problem and a shock to those who have not received the correct guidance.
Most LTD insurance companies require claimants to sign a Social Security Reimbursement Agreement before benefits are paid by the LTD company. Individuals who do not make this re-payment of the Social Security award to their LTD carrier may find their monthly checks reduced or even halted until the repayment has been made. In our experience, the disability insurance company does attempt to inform the claimants that they must reimburse the insurance company for the amount of the “overpayment” but when you are too ill to work, often this is the kind of bureaucratic headache that can easily spiral from a simple oversight into a massive financial problem.
There are been cases where courts have said that the offsets are not acceptable, but these are primarily in cases where the policy language is not specific enough or does not appear in the contract. In general, almost all disability insurance policies purchased by employees through the workplace contains this offset section.
In theory, the offset provision was designed to ensure that the combined benefits paid to a disabled employee are not more than the person would receive if they were working. From a social policy perspective, the intent was to prevent the possibility of a nation of employees who earned more for not working than for being productive members of society.
Disability insurance was not available to most employees until 1956, when Congress extended Social Security benefits to include disability coverage so as to reduce the cost to employers for providing disability insurance to workers. At that time, only upper management and senior officials of companies had disability insurance. Today disability insurance is offered to and purchased by millions of Americans and is considered a part of any benefits package for salaried employees.
It should be noted that most individually or privately purchased disability insurance policies do not have offset clauses. Individuals with high incomes often find a mixture of workplace disability policies and privately purchased disability insurance policies provide the correct level of coverage for them and their families.
If you have questions about this or any disability insurance matter, call our office at 1-877-LTD-CLAIM (877-583-2524) to learn how we can help.