How to Calculate Your Long Term Disability Benefits and the Insurance Carriers Right to a Social Security Offset
Did you know that many long term disability policies are written so that the long term disability insurance company gets to reduce your long term disability benefits by the receipt of “other income” which can include your Social Security Disability benefits, your family member’s Social Security Disability benefits and even workers’ compensation benefits. But it’s worse! Not only does the short or long term disability insurance company get to reduce your monthly long term disability benefits by your monthly Social Security benefits, they will often sue you to recover your back long term disability benefits arguing that you have been “overpaid”.
How does this work? Under most long term disability policies, you get a percentage of your pre-disability wage, so, for example, if you made $24,000 a year before you became disabled, your pre-disability income would be $2,000 per month. Many long term disability policies pay a percentage of your pre-disability wage which commonly is about 60%. In our example, the gross monthly long term disability benefits would be $1,200.
Now the deductions begin! If you receive Social Security Disability benefits in the amount of $600 per month and your child gets $300 per month in dependent benefits, that $900 will be subtracted from your monthly long term disability benefits. Your net long term disability benefits will only be $300 per month.
Unfortunately, it takes as long as two years to get Social Security Disability benefits. Long term disability carriers will ask you to sign a repayment agreement in which you agree that you will repay the long term disability carrier any overpayment as a result of the later receipt of Social Security Disability benefits. The long term disability carrier will let you collect your full long term disability benefits, but they want their money back immediately if you get your Social Security Disability benefits.
Many times the back balance is in actual policy.
Whether the long term disability carrier can get repayment for an overpayment varies from the United States District Court to district.
Here in the 11th Circuit in Florida, the court has ruled that if you have dissipated or spent the money, that you got for the overpayment that you do not have to repay the long term disability carrier in a lump sum. However, some of the courts in the district in the 11th circuit have indicated that nothing prevents the long term disability carrier from reducing your monthly benefits by the receipt of your Social Security Disability benefits and any pro-rider reduction to recoup the lump sum for overpayment that occurred when you got your back Social Security Disability benefits. In other words, it appears as if in the 11th Circuit, a long term disability carrier is going to get their money one way or the other.