Navigating through the complex landscape of disability benefits can be overwhelming, especially when dealing with both long-term disability (LTD) insurance and Social Security Disability Insurance (SSDI). One of the most common questions people have is “Do I need to pay back long-term disability benefits once I start getting Social Security Disability benefits?”
The short answer is that you may need to repay your long-term disability insurance provider once you begin receiving SSDI benefits. At Ascend Disability, we are here to help you understand how SSDI and LTD interact and how to protect your benefits.
What Are Long-Term Disability Benefits?
Long-term disability insurance provides financial support to individuals who cannot work due to illness or injury for an extended period. Typically offered through employer-sponsored plans, LTD benefits replace a portion of your income. Depending on the specifics of your LTD policy, these benefits may continue for several years or until retirement age, as long as you remain disabled under the policy’s terms.
However, LTD policies often come with certain conditions and provisions. One of the most significant provisions is that most LTD plans require you to apply for Social Security Disability if you’re likely to qualify. The reason behind this requirement is that SSDI benefits can act as a partial or full offset to your LTD benefits.
Understanding Social Security Disability Benefits
SSDI is a federal program administered by the Social Security Administration (SSA) that provides monthly payments to individuals who cannot work due to a disability. To qualify for Social Security Disability, you must have worked a certain number of years and paid into Social Security through payroll taxes.
Your monthly Social Security Disability payments are calculated based on your previous earnings.
How LTD and SSDI Interact
The interaction between LTD and SSDI benefits is crucial to understanding whether you need to pay back your LTD insurance if you start receiving SSDI. Most long-term disability insurance policies include an “offset” provision. This means that the LTD insurer can reduce your monthly LTD benefits by the amount you receive from SSDI.
For example, if your LTD policy pays you $2,000 per month and you are awarded $1,000 per month from SSDI, your LTD insurance company will typically reduce your monthly LTD benefit to $1,000. This offset allows the insurance company to lower its payout since SSDI is covering part of your lost income.
The offset provision serves two main purposes for insurers: it reduces their liability and keeps premiums lower for policyholders. However, it can also lead to confusion, particularly when SSDI backpay is involved.
What Is SSDI Backpay and Why Does It Matter?
It often takes several months or even years for Social Security disability claims to be approved. After approval, Social Security may award you retroactive benefits. This backpay covers the period from the time you applied for SSDI (or from the time you became disabled, if earlier) to the time your benefits were approved.
This backpay can amount to a substantial sum, sometimes tens of thousands of dollars. While this can be a welcome financial relief, it’s important to understand that your LTD insurance carrier may claim part or all of this backpay as an overpayment.
Do You Have to Repay Long-Term Disability Benefits?
Yes, in many cases, you will need to repay your long-term disability insurer once you start receiving SSDI, particularly when backpay is involved.
Most long-term disability policies have a provision that allows the insurance company to recover any overpayment. If you receive SSDI backpay for months when you were also receiving long-term disability benefits, the insurance company may demand repayment. The insurer argues that it has been paying you more than it should have since SSDI should have been offsetting your LTD benefits.
Let’s break it down with an example:
- You were receiving $2,000 per month from your long-term disability policy.
- After a lengthy application process, you are approved for SSDI and awarded $1,000 per month.
- You receive $12,000 in SSDI backpay for the 12 months your disability application was pending.
- Because of the offset provision in your LTD policy, the insurance company would argue that you were “overpaid” $1,000 for each of those 12 months since it should have reduced your LTD payments by the amount you were entitled to receive from SSDI.
- As a result, the insurer would request that you repay the $12,000 in overpaid benefits.
This repayment process often catches people by surprise, especially because SSDI backpay is intended to help cover the long period when no benefits were received. However, most LTD policies allow the insurance company to demand repayment in these circumstances.
How Do Insurance Companies Recover Overpayments?
Once you receive your SSDI backpay, the long-term disability insurance company will typically ask for immediate repayment. Most insurers will require you to sign a reimbursement agreement when you start receiving LTD benefits, which states that you agree to repay any SSDI overpayment once your SSDI claim is approved.
There are several ways that insurers handle overpayments.
Lump Sum Payment
The insurance company may request a lump sum payment, typically within 30 days of receiving your SSDI backpay. This can be challenging for individuals who were counting on that backpay for other expenses.
Reduction of Future LTD Payments
Some insurers will allow you to repay the overpayment gradually by reducing your future LTD benefits. For example, if you owe $12,000 in overpaid benefits, the insurer might reduce your monthly LTD benefit by $500 per month until the overpayment is repaid.
Suspension of Benefits
In more extreme cases, if you refuse or are unable to repay the overpayment, the insurer may stop your LTD benefits entirely until the overpayment is satisfied.
What Happens If You Don’t Pay Back Long-Term Disability?
Failing to repay your LTD insurer after receiving SSDI backpay can have serious consequences. In many cases, the insurer will stop paying your LTD benefits until the overpayment is repaid.
In rare cases, the insurance company may take legal action to recover the overpayment, especially if the amount is substantial. It’s important to remember that you likely signed a reimbursement agreement with the insurer when you began receiving LTD benefits, which means that failure to repay could be considered a breach of contract.
Although lawsuits for overpayment recovery are rare, they do happen. The best course of action is to communicate openly with your insurer and try to work out a repayment plan if you’re unable to pay the full amount immediately.
Attorneys’ Fees and Dependent Benefits
It’s important to note that not all of your SSDI backpay may be subject to repayment. For example, if you used a Social Security disability attorney to help with your claim, the attorney’s fees are typically deducted from your backpay before calculating the overpayment. Additionally, if your spouse or children receive auxiliary SSDI benefits, those benefits may also be subject to an offset by the LTD insurer.
Make sure to carefully review your policy and consult with your attorney or insurer to clarify how these factors may impact your repayment obligations.
How to Protect Your Benefits
If you are receiving both LTD and SSDI benefits, there are several steps you can take to protect your benefits and minimize the risk of overpayment:
Read Your LTD Disability Policy
Carefully review your long-term disability policy to understand the offset provisions and repayment requirements. If anything is unclear, don’t hesitate to contact your insurance company or consult a disability attorney for clarification.
Track Your Benefit Payments
Keep detailed records of the benefits you receive from your LTD insurer and the Social Security Administration. This will help you ensure that any overpayment calculations are accurate and that you’re not being asked to repay more than necessary.
Seek Legal Help
If you’re unsure about the terms of your LTD insurance policy or if you’ve been notified of an overpayment, reach out to a disability attorney. Legal professionals with experience in both LTD and SSDI claims can help ensure that your rights are protected and that any repayment obligations are handled fairly.
Contact Our Disability Lawyers Today
While the interplay between long-term disability insurance and SSDI can be complex, understanding how the offset provisions work is crucial to managing your benefits effectively. If you receive SSDI backpay, it’s highly likely that your LTD insurer will require repayment for any overpaid benefits. Knowing your rights, understanding your policy, and seeking professional guidance can help you navigate this process smoothly.
At Ascend Disability, we are committed to helping individuals with disabilities understand their benefits and protect their financial well-being. If you have questions about SSDI, LTD, or overpayment issues, don’t hesitate to reach out for a free consultation. We are here to support you every step of the way.