The Disability Offset Catch

If you have long-term disability insurance through your work, and you have received long-term disability benefits under that policy, you need to be aware of the disability offset provisions.

Most likely, your disability policy contains language that allows the long-term disability insurance company to deduct (or offset) any amounts you receive from other sources for your disability.  These other sources could be social security disability, worker’s compensation, an injury settlement, disability retirement through employer, or another long-term disability policy.  The precise offsets will be in your policy.

The language of the policy usually allows the disability insurer a dollar-for-dollar deduction of those benefits.  More significantly, the provision usually allows the insurer to recapture any “overpayment” when you are given a lump sum retroactive award.

What is an “overpayment?”

Let’s take an example with these facts:

• You receive $2,500 per month for long-term disability benefits.
• You have been receiving these benefits for 24 months;
• You were recently awarded social security disability benefits in the amount of $1,000 per month;
• The SSDI award found you disabled as of 18 months prior to the decision;
• You will receive a lump sum payment from social security of approximately $18,000 ($1,000 per month times 18 months).

According to the terms of the long-term disability insurance policy, you will have been overpaid by the insurance company by $18,000.  How is this?  Because the policy calculates the amount payable as your maximum benefit minus any offsets.

In this case, even though you did not receive any deductible offset until 24 months after receiving the long-term disability benefits, you will still be required to reimburse the insurer for their overpayment. The catch is that if you did not receive the benefits you would not have to repay them, but since you did receive them you will have to repay them.

This is troubling news for Houma disability claimants.  The situation is often not caught immediately by the insurer and the claimant does not usually report it, but you are contractually obligated to reimburse the insurer this money.

What happens is that when the insurer finds out, you either have to pay it back in one lump sum or your monthly benefits are reduced.  The choice is usually up to the insurance company under the terms of the policy.

I have had to explain this to quite a few Louisiana long-term disability clients, and it breaks my heart every time.  This topic brings up another important thing – please read your policy so that you understand the offsets applicable to your policy.