Your long-term disability claim has been approved and the checks are arriving. Then the insurance company writes that you must apply for Social Security Disability Insurance. Why would an insurer that already agrees you are disabled want a government agency to decide the same question?
The short answer: the insurer wants Social Security to pay part of your monthly benefit so it can pay less. But applying can help you too, as long as you avoid a few financial traps.
How the offset works
Most employer-sponsored LTD policies have an offset provision. It lets the insurer reduce your LTD check by certain other disability income, including SSDI.
Say your policy pays $4,000 a month. Social Security later approves you for $2,000 a month.
| Source | Before SSDI | After SSDI |
|---|---|---|
| LTD insurance | $4,000 | $2,000 |
| Social Security disability | $0 | $2,000 |
| Total each month | $4,000 | $4,000 |
You still receive $4,000 a month. The insurer now pays only half. Over ten years, that difference is $240,000. That is why insurers want their claimants on SSDI. Your policy’s exact terms control the math; some policies have a minimum monthly benefit, and other income may count too.
Can the insurer make me apply?
In many cases, yes. If your policy requires you to apply for other disability benefits you may qualify for, the insurer can generally enforce that. Some policies also require you to appeal if Social Security denies you.
If you refuse, many policies let the insurer reduce your check by an estimated SSDI amount, even though Social Security is paying you nothing. With a $4,000 benefit and an estimated $2,000 SSDI award, you could be left with $2,000 a month from all sources. Some policies allow other consequences as well.
Never ignore a letter requiring you to apply. Read the policy and understand exactly what the insurer is asking for.
The biggest trap: your back pay
Social Security claims can take months or years. Meanwhile, your insurer may keep paying your full LTD benefit. When Social Security finally approves you, it pays back benefits for the months you were entitled, and your insurer may claim part of that money.
Example: you have received $4,000 a month in LTD for 18 months. Social Security approves you and decides you were entitled to $2,000 a month for those same 18 months. You receive $36,000 in back pay. Under the offset, the insurer says it overpaid you $2,000 a month for 18 months, or $36,000, and demands it back. Depending on your policy and any reimbursement agreement you signed, it may have the right to collect.
Do not spend your SSDI back pay until you know what your LTD insurer is owed. Ask the insurer for a written accounting of any claimed overpayment, check the months and amounts, and remember that SSDI benefits may be taxable depending on your total income. More: My insurer wants more money than I received.
The insurer may offer you an SSDI representative
Some insurers refer claimants to outside companies that handle Social Security applications, and pay for the service. That makes sense for the insurer: if a 50-year-old claimant on $2,500 a month in LTD is approved for $1,500 a month in SSDI, the insurer saves $18,000 a year.
Many policies require you to pursue SSDI but do not require you to use the insurer’s chosen representative. Check your policy and anything you signed before you decline. And understand that the recommended company may have an ongoing business relationship with your insurer. Ask who the representative works for, how they are paid, and whether you are free to choose someone else.
SSDI approval can protect your LTD benefits
This surprises people. The same SSDI approval that lowers your LTD check can help you keep it.
Social Security requires proof that you cannot do substantial gainful work because of an impairment that has lasted or is expected to last at least 12 months or result in death. Many LTD policies start with an easier own-occupation test and switch to an any-occupation test after 24 months. At that point, an SSDI approval matters, because Social Security has already found you unable to do other work under its rules.
An SSDI approval does not automatically win your LTD claim; the two systems use different definitions. But for ERISA plans, federal rules require an insurer that denies or terminates a disability claim to explain why it disagrees with a Social Security disability decision that you presented to it. So send your Social Security decision to your LTD insurer. More: Approved for SSDI: what happens to my LTD claim?
Benefits for your children
When you are approved for SSDI, your eligible children may receive auxiliary benefits on your record. Some LTD policies let the insurer offset those too.
Example: you receive $2,000 a month in SSDI and your child receives $500. Your LTD benefit is $4,000 before offsets. If the policy allows offsets for both, the insurer may reduce your LTD payment by $2,500, to $1,500. Not every policy allows an offset for dependent benefits, and retroactive dependent benefits can create their own overpayment claim. Have the policy language and the insurer’s math reviewed before you agree to repay anything.
LTD does not reduce your SSDI
The offset runs one way. Your LTD insurer may reduce its payment because of SSDI, but Social Security generally does not reduce SSDI because you receive private LTD benefits. Workers’ compensation and certain public disability benefits are different and can reduce SSDI under federal rules. More: LTD and workers’ compensation offsets.
Five things to do when your insurer tells you to apply
- Read the policy. Does it require you to apply, to appeal a denial, or to use a particular representative?
- Apply promptly if the policy requires it and you may qualify. Delay can hurt both claims.
- Consider your own Social Security disability attorney, someone who understands how the two claims interact.
- Plan for an overpayment. If you are receiving full LTD while SSDI is pending, expect a reimbursement demand when back pay arrives.
- Keep your Social Security decision and records, and send the decision to your LTD insurer. It can be important evidence if the insurer later tries to end your benefits.
The bottom line
Your insurer wants you on SSDI because it saves the insurer money. But SSDI also gives you income independent of the insurer, possible benefits for your family, eventual Medicare eligibility, and evidence that can protect your LTD claim. Do not ignore the request, and do not assume the insurer’s interests are the same as yours.
Has your LTD insurer told you to apply for SSDI? Call 770-351-0801 or request a free case evaluation. Our firm has represented Social Security disability claimants for decades at ssdanswers.com.
Related: Approved for SSDI: what happens to my LTD claim? · The overpayment demand · Should I take a buyout offer?
Legal reference (optional sidebar): 29 C.F.R. § 2560.503-1(g)(1)(vii)(A)(iii) and (j)(6)(i)(C).