Understanding Long-Term Disability Overpayment Recovery Clauses

Long-term disability companies have the authority to reduce your benefits and charge you with an overpayment when you receive Social Security backpay or other types of income. It’s essential to understand how overpayments are handled so that you aren’t caught off guard and know your rights and obligations. It’s an excellent idea to discuss your situation with a knowledgeable Chicago long-term disability attorney.

Other Forms of Income Requiring Offsets

In addition to deducting Social Security disability benefits, most LTD policies offset other types of income such as:

• State short-term disability benefits
• Workers’ compensation benefits
• Third-party settlements—for example, a personal injury award

However, common sources of income that aren’t offset include 401(k) plans, individual retirement accounts, severance packages, stock options, and profit-sharing plans.

Long-Term Disability Overpayment Example

In many cases, the offsetting income isn’t immediately applicable and therefore not initially deducted from your monthly benefits. For example, suppose:

• Your long-term disability benefits are $2,500/month. 
• You have received these payments for a total of 24 months.
• You were recently awarded social security disability benefits at $1,000/month.
• The SSDI award determined you were disabled as of 18 months before this decision.
• You will receive a lump-sum payment from social security of approximately $18,000 ($1,000/month times 18 months).
• According to the terms of your long-term disability insurance coverage, you will have been overpaid by the insurance company by the sum of $18,000 when you receive this lump sum payment.

This can happen because the policy calculates the amount payable as your maximum benefit, minus any offsets. Even though you didn’t get any deductible offset until 24 months after receiving your long-term disability benefits, you will still be required to pay back the LTD insurer for their overpayment. If you didn’t receive the benefits, you wouldn’t have to repay them, but you will be required to repay them since you did get them.

What Happens After an Overpayment?

The insurer often does not immediately discover an overpayment situation, and claimants don’t usually report it. However, you are contractually obligated to reimburse the insurer the money. What happens when the insurer finds out?  You will either have to pay it back in one lump sum, or your monthly long-term disability benefits will be reduced until they are paid back. The insurance company and the terms of your policy usually dictate how it is paid back. However, suppose you don’t pay the overpayment out of your Social Security back pay. In that case, insurers may stop paying LTD payments entirely until their overpayment has been repaid. Usually, this option is a last resort.

Typically, the LTD insurance company only seeks to recover substantial amounts —$10,000 or more. However, this still makes for a difficult situation for a disability claimant already struggling to survive on 60 percent or so of their earnings and trying to manage their medical expenses.

Sometimes, a recipient’s deductible (offset-able) income, whether from Social Security or another source, actually exceeds the monthly LTD payment. Instead of paying you nothing in these circumstances, most policies provide a minimum monthly benefit of $50 or $100 that can be collected no matter the offset amount.

Questions about LTD Overpayments? Reach Out to a Seasoned Chicago Long-Term Disability Lawyer Today

If you have questions for a seasoned Chicago long-term disability attorney, look no further than the professionals at Bartolic Law. Contact us to receive your no-obligation case consultation.