Long-Term Disability Insurance and Social Security Disability Insurance
By the GWAAR Legal Services
Long-Term Disability (LTD) Insurance Policies and Social Security Disability Insurance (SSDI) both serve a similar purpose, to provide income for an individual if they become unable to work for a significant period of time due to a disability. LTD policies are private insurance policies purchased by an individual (or individual’s employer), whereas SSDI is a program authorized through Title II of the Social Security Act. Although these are two very different types of programs, there are several considerations around how these programs work together. These considerations are policy-specific, so an individual will want to look at their LTD policy documents very carefully.
First, most LTD policies will require that the individual apply for SSDI benefits immediately or after a specific timeframe in order to continue receiving payments. Similarly, if their disability is a workplace-related injury or illness, their LTD policy will likely require that they apply for any workers’ compensation to which they may be entitled. This is because many LTD policies include a provision that benefits will be offset by these other forms of compensation. For example, if an individual’s LTD policy pays $2,000 per month and their SSDI benefit is $1,500 per month, the LTD will be offset by the SSDI benefit amount and only pay the difference. In this example, the LTD policy will only pay $500 in any month that this individual was eligible for SSDI benefits.
Now, if an individual is approved for SSDI benefits with a backdated onset date and entitlement to retroactive benefits, they may owe the LTD policy the offset amount for those months of backpay. For example, using the numbers above, if someone was entitled to six months of retroactive SSDI benefits, they would be required to repay the LTD policy $9,000 ($1,500 x 6). When that is the case, the individual should have the money available from when they received their retroactive SSDI benefit payment. For this reason, it is important for the individual to read and understand their LTD policy and any related letters sent to them throughout this process. It is also important that they do not spend any retroactive SSDI benefit payment until they are sure of any obligations under any LTD policies.
The examples highlighted above are based upon typical scenarios. However, each LTD policy may be different. Again, it is important to examine individual LTD plan policy documents very carefully to see if and how the policy applies to individual situations.