Can my long-term disability (LTD) insurance take my SSDI back pay?

Yes. Most LTD policies include a provision that allows the insurance company to claim a portion of your SSDI back pay as reimbursement for LTD benefits paid while your Social Security Disability claim was pending.

Why do LTD insurers require you to apply for Social Security Disability?

LTD insurers require you to apply for SSDI because any benefits you receive from Social Security can be used to offset what the insurance company has to pay you. This reduces their financial obligation.

How does an offset between SSDI and LTD benefits work?

Offsets occur when your LTD benefits are reduced by the amount you receive from SSDI. For example, if your LTD benefit is $1,500/month and SSDI pays $1,000/month, the LTD insurer will only pay $500 to make up the total $1,500.

What happens if I don’t repay the LTD insurer after receiving SSDI back pay?

If you don’t repay the LTD insurer, they may suspend your monthly LTD benefits or withhold future payments until the overpayment is recovered. Most LTD contracts allow insurers to take such actions.

Does the insurance company consider attorney fees when claiming SSDI back pay?

No. Insurance companies usually do not factor in attorney fees when calculating overpayment. However, SSDI typically deducts attorney fees directly from your back pay before issuing the remainder.

Are my SSDI benefits taxable?

SSDI benefits may be taxable depending on your total income and filing status. LTD benefits are generally not taxable unless premiums were paid with pre-tax dollars. You can apportion SSDI back pay over past tax years to potentially reduce your tax liability.

Can dependents' SSDI benefits be offset by my LTD insurance?

Yes. If your spouse or children receive dependent SSDI benefits due to your disability, LTD insurers may include those amounts in their offset calculations and reduce your LTD payments accordingly.

Should I consult an attorney about LTD and SSDI offsets?

Yes. Because LTD and SSDI interactions can be legally and financially complex, consulting with an experienced Social Security Disability attorney can help you understand your rights and ensure you are not unfairly penalized.

Can Disability Insurance Take SSDI Payments Away?

Can Disability Insurance Take SSDI? Understanding LTD and SSD Interactions

Can Disability Insurance Take SSDI – Sadly, it’s not uncommon for people to wait a year or more after filing for Social Security disability (SSD) benefits before approval. While waiting, many individuals may already be collecting long-term disability (LTD) insurance payments. Due to the complicated nature of how LTD insurance and SSD benefits interact, some people may be surprised to discover that when their SSD benefits finally begin, their insurance company could take any SSD back pay they are entitled to.

If you’re counting on SSD back pay, but your insurance carrier unexpectedly takes it away, the results can be devastating. Let’s explore how LTD and SSD benefits work together and what you should expect if you receive both.

How Social Security and Long-Term Disability Benefits Interact

When someone begins collecting LTD insurance payments, the insurance company will most likely require them to apply for SSD benefits and provide proof that they’ve filed within a specified timeframe. This requirement helps ensure that if SSD benefits are approved, the insurance company can reduce its payout by the amount Social Security pays.

Offset Example:

If you’re entitled to $1,500 in LTD benefits per month but are approved for $1,000 in SSD benefits, you will still only receive $1,500 total. The insurance company will pay $500, and SSD will pay the remaining $1,000. This is called an “offset.”

SSD Back Pay Complications:

However, things get more complicated when you receive SSD back pay. Most SSD recipients are entitled to back pay for the time between their application and approval. If the process takes a year, this could amount to a significant sum. When you collect SSD back pay, your LTD carrier may have a right to claim a portion of that lump sum to offset the payments they made during that time.

Handling LTD Overpayment

Under most LTD policies, your insurance carrier may claim part of your back pay as an “overpayment” if you receive LTD and SSD benefits.

Insurance Company’s Actions:

Insurance companies typically handle overpayments by demanding full repayment upon receiving SSD back pay or reducing monthly LTD payments. If repayment is refused, they may stop monthly payments until the debt is cleared.

Factors That Affect Overpayment Claims

Several factors can influence how much the insurance company can claim from your SSD back pay:

Dependents

Insurance companies can offset payments using dependent benefits paid by SSD to spouses or children.

Other Income

Income from state short-term disability, workers’ compensation, or third-party settlements may also be factored in.

Cost-of-Living Adjustments

Insurance carriers typically don’t factor Social Security’s annual cost-of-living adjustments (COLAs) into their offsets.

Attorney’s Fees

The offset calculation does not consider attorney fees (typically 25% of SSD back pay).

Tax Issues with LTD and SSD Back Pay

Dealing with taxes on SSD back pay and LTD benefits can be complicated. While LTD benefits are generally nontaxable, SSD benefits may be subject to taxes, depending on your income level.

Tax Tips:

Provisional Income: Whether your SSD benefits are taxable depends on your total income and tax filing status.
IRS Back Pay Apportionment: If taxes are due on your SSD back pay, you can apportion it onto the previous year’s tax return to reduce or eliminate the taxable portion.

This can help reduce the impact of paying taxes on money you haven’t received, especially when the insurance company claims your SSD back pay.

Will Your LTD Insurance Carrier Be Entitled to Your SSD Back Pay?

Yes, almost certainly. Insurance carriers can claim SSD back pay based on your LTD contract, not SSD law. Review your insurance agreement for specifics.

Navigating the Complexities of LTD and SSD Benefits

The interaction between LTD insurance and SSD benefits can be complex, especially with back pay, offsets, and tax issues, making it crucial to understand their financial impact.

If you are overwhelmed by the complexities of LTD and SSD interactions, especially when dealing with back pay, contact the Social Security lawyers at Gallon, Takacs & Boissoneault for a free consultation. Attorney fees are typically deducted from your SSD back pay so that you can get expert legal advice at no additional cost.

Ted Bowman

Ted Bowman is a Senior Associate and practices in the Workers’ Compensation and Social Security Disability sections. Ted began his career with GT&B in 1988. His reputation and success record as a trial lawyer arguing before the Industrial Commission on behalf of injured workers, as well as in trial courts and the Supreme Court of Ohio, are well known.

Can Disability Insurance Take SSDI