Can Long-Term Disability Insurance Take SSDI Backpay?

If you become unable to work due to a physical or mental condition and you're covered by a private long-term disability (LTD) plan, you might be able to collect LTD benefits at a base percentage of your usual earnings. At the same time, you might also be eligible for Social Security disability if you can establish that you can't work any job full-time for at least one year.

However, if you do qualify for both LTD and Social Security disability benefits, it's unlikely that you'll be able to collect the full amount of both benefits at the same time. Depending on the specifics of your long-term disability policy, you may be required to pay back at least some of the money you receive from Social Security to your LTD provider.

Can You Collect SSDI and Long-Term Disability Insurance Benefits?

Yes. In fact, if you're receiving long-term disability insurance benefits under a group or individual LTD plan, your policy carrier will likely require you to file for Social Security disability. That's because most long-term disability policies allow the insurance company to reduce your payments dollar-for-dollar by the amount you receive from Social Security.

For example, if you're receiving $1,500 in monthly LTD benefits per month and you're also awarded $1,000 per month in SSDI, you won't be able to add them together for a total of $2,500. Instead, you'll collect a total of $1,500—the same as your LTD policy amount—but with $1,000 coming from Social Security and the remaining $500 from the long-term disability insurance carrier. The amount by which your LTD payment is reduced is called an offset.

Because of the offset, many claimants (applicants) mistakenly believe that the long-term disability provider "garnishes" your Social Security payments, but your ongoing SSDI benefits remain intact—it's your LTD payments that decrease. While the offset strikes many as unfair, insurance companies are quick to point out that it helps keep monthly premiums low.

Do You Have to Pay Back Long-Term Disability?

Social Security disability benefits are rarely approved quickly. Unless your disability claim is one of the few approved initially after you apply, you can expect to wait at least a year or more before you start receiving disability benefits.

Because Social Security often takes so long to decide whether you're disabled, many claimants will be entitled to substantial back pay in the form of a lump-sum payment. These benefits are meant to account for the period during which you met Social Security's definition of disability, but the agency hadn't yet come to that conclusion.

The offset provision in your LTD policy means that your long-term disability insurance company may be entitled to most or all of this back pay. The reasoning behind this provision is that the company has "overpaid" you for those months during which you received both the full amounts of LTD and Social Security benefits in the form of back pay.

The insurance company uses the Notice of Award you receive from Social Security to calculate the overpayment. The overpayment is generally the amount of backpay you received, minus any attorneys' fees. Be sure to double-check the company's math, because mistakes do happen—and, unsurprisingly, errors tend to be in the insurer's favor.

How Do Long-Term Disability Insurance Companies Recover Overpayments?

Insurance companies typically deal with an overpayment by requesting that you immediately reimburse the full overpayment amount as soon as you receive your Social Security backpay. Some will agree to reduce your monthly LTD payment until the overpayment has been satisfied.

Expect your LTD insurance company to have you sign a Social Security Reimbursement Agreement stating that you'll repay any Social Security retroactive benefits to the company, typically within 30 days of receiving your back pay.

You may also be sent a Payment Option Form offering you the choice to receive a reduced amount of LTD benefits while your disability application is pending, so that you don't have to pay back an overpayment. But because you won't know how long it will take to get Social Security benefits—or if you'll be awarded at all—almost no one accepts this rather unappealing offer.

What Happens If I Don't Pay Back Long-Term Disability?

If you don't pay the insurance company from your Social Security backpay, they can stop your LTD entirely until the overpayment has been repaid. Keep in mind that a Social Security Reimbursement Agreement is a contract with the long-term disability provider to pay them back, so the insurance company can sue you if you don't uphold your end of the obligation. While this happens very rarely, you shouldn't count on the LTD insurer to forget about your repayment long enough to avoid the statute of limitations on breach of contract.

How Dependent Benefits and Attorneys' Fees Affect the LTD Offset

If Social Security is paying dependent benefits—often referred to as "auxiliary benefits" in long-term disability policies—to your spouse or children based on your disability, your insurance carrier may offset these amounts by subtracting them from your LTD payments as well.

Social Security disability attorneys' fees come out of your back pay and generally aren't included in the LTD offset. Long-term disability attorneys have a different fee structure. Both types of attorneys work on contingency, however, meaning they don't get paid unless you win your case. Some LTD insurers will provide you with an attorney to help you with your Social Security claim, under the assumption that having a lawyer increases the odds that you'll be awarded disability benefits (and that they'll get paid).

Every policy is unique, so read your policy's summary plan description or contact your insurer to learn how dependents/auxiliary benefits and attorneys' fees can affect your Social Security offset.

Long-Term Disability Income Offsets

In addition to deducting Social Security benefits, the vast majority of LTD policies offset other sources of income often relied on by disabled people, such as:

• state short-term disability benefits
• workers' compensation benefits, and
• third-party settlements, such as a personal injury award.

Common income sources that aren't offset include:

• 401(k) plans and individual retirement accounts
• severance packages
• stock options, and
• profit-sharing plans.

Occasionally, all the income that can be offset from long-term disability exceeds the monthly LTD payment amount. In these instances—rather than paying you nothing—most policies provide for a minimum monthly benefit of $50 or $100 that you can collect regardless of the total offset amount.

Can You Collect Long-Term Disability and Social Security Retirement or a Private Pension?

Whether retirement or pension benefits affect your LTD payments depends on your specific insurance plan. Many LTD policies do end at retirement age, while others continue indefinitely, but with an offset for retirement benefits. Likewise with private pension plans, although these are becoming increasingly rare.

Individual disability policies—as opposed to employer-provided group plans—are more likely to be tailored to your needs. While you'll still find individual plans with many offsets, some (expensive, top-tier) plans might not call for any offsets at all, even for pensions or Social Security retirement. The wide variation among long-term disability policies makes it essential that you read your plan carefully.

Consider Getting Legal Help

Trying to decipher the ins and outs of your LTD insurance policy or Social Security's rules can be frustrating even in the best of times. If you're struggling to figure out how to handle an overpayment notice or if you think your benefit amount is incorrect, consider contacting an experienced Social Security lawyer or long-term disability attorney. Many offer free consultations, so you can find one that is a good fit for you.