If you have been receiving long term disability (LTD) benefits, you have probably received a letter from your insurance company telling you to apply for Social Security Disability Insurance benefits, also known as SSDI. They may have offered to connect you with a service to help with this application.
You might be wondering why the insurer cares so much about whether you apply for SSDI. The short answer is that it usually saves the insurance company money. However, applying for SSDI can benefit you as well. It is important to understand how LTD and SSDI benefits interact so that you can be prepared.
What Is the Difference Between LTD and SSDI?
LTD and SSDI are two separate disability benefit systems.
Long term disability insurance (LTD) is an insurance policy typically either provided through your employer or purchased privately. It is governed by the terms of the insurance policy. Your eligibility depends on the policy’s definition of disability, which often changes after 24 months from an “own occupation” standard to an “any occupation” standard. You have to be covered by a policy prior to the start of your disability in order to be eligible for benefits.
Social Security Disability Insurance (SSDI) is a federal benefit administered by the Social Security Administration, which you pay into through payroll taxes during your working years. To qualify, you must show that you are unable to engage in substantial gainful activity due to a medically determinable impairment which is expected to last at least 12 months or result in death. SSDI uses federal regulations and a five-step evaluation process to determine disability.
Why LTD Insurers Require You to Apply for SSDI: Benefit Offsets and Overpayments
Most LTD policies contain terms that allow the insurer to offset your LTD benefit by other sources of income that you receive. One of these sources of income that is typically offset from your LTD benefit is SSDI.
For example, if you are receiving an LTD benefit of $3,000 per month and you later get approved for SSDI and receive $2,000 per month, your LTD benefit will decrease to $1,000 per month.
That is why insurers strongly encourage, and often require, you to apply for SSDI.
One of the biggest financial surprises claimants face is an overpayment demand. It is common to have a claimant receiving full LTD benefits for many months or years, then get approved for SSDI and receive a large backpay check. Because that backpay overlaps with the time period that the claimant was receiving LTD, the insurer will now assert an overpayment interest and may request repayment of tens of thousands of dollars.
It is important to understand this dynamic at the outset and not spend any SSDI backpay that you receive until the LTD insurer has provided you with their overpayment calculations.
What Happens If You Refuse to Apply?
Many claimants are surprised to find that their policy allows the insurer to estimate what their SSDI benefit would be and reduce their LTD payment accordingly, even if they have not applied yet. Typically, you can continue receiving your full LTD benefit while your SSDI claim is pending, as long as you sign a reimbursement agreement for the insurer and provide proof that you are continuing to pursue your SSDI application.
Before deciding not to apply for SSDI, it is important to understand what your policy says about the insurer’s ability to apply an estimated offset if you fail to pursue other benefits that you may be entitled to.
Why An SSDI Approval Can Help You
Applying for SSDI doesn’t only benefit the LTD insurer, however. It can also benefit you.
Diversifying Income
If you have been receiving LTD benefits for any length of time, you know that insurers periodically review claims and may abruptly terminate benefits if they believe the medical evidence no longer supports disability under the policy’s definition. Receiving benefits from more than one source can provide an added layer of financial stability. If your LTD benefits are terminated in the future, SSDI benefits can provide some ongoing income while you appeal or litigate your LTD claim.
Additional Evidence for Your LTD Claim
An approval from the Social Security Administration can strengthen your LTD claim, especially if the insurance company later tries to terminate your benefits. While SSDI and LTD use different legal standards, a federal disability finding can be persuasive evidence. In many cases, courts expect insurers to meaningfully address a favorable SSDI decision when reviewing or terminating LTD benefits. If the insurer denies your claim and fails to adequately consider your SSDI award, you may have a stronger argument on appeal or in front of a judge that the insurer’s decision was unreasonable.
Medicare Eligibility
If you are approved for SSDI, you generally become eligible for Medicare after 24 months of entitlement to SSDI benefits, regardless of your age.
This can be extremely important if you lose employer sponsored health insurance, you are too young for traditional Medicare, and/or you need stable long term access to specialists or ongoing treatment.
Protection of Your Retirement Benefits
Some individuals consider taking early Social Security retirement instead of pursuing SSDI. However, early retirement permanently reduces your monthly retirement benefit.
By contrast, if you are approved for SSDI, you receive disability benefits now and when you reach full retirement age, your SSDI automatically converts to full retirement benefits with no penalty that applies to an early retirement claim.
Should You Let the Insurance Company’s Vendor Help With Your SSDI Application?
Many LTD insurers offer assistance with your SSDI claim through a third-party representative. It’s important to understand that you are not required to use the insurance company’s recommended representative and you are entitled to consult with or retain an attorney of your choosing, or pursue your claim on your own.
Some claimants are comfortable using the insurer’s referral program. Others prefer to seek independent advice. In some cases, a law firm like ours can handle both the LTD and SSDI matters, which allows information to be coordinated across both claims.
Under many policies, reasonable attorney’s fees paid to obtain SSDI benefits are excluded from the LTD insurer’s overpayment calculation, so you won’t lose extra money for using a private attorney. You can take time to think about how you’d like to proceed with your SSDI application (on your own, with a private attorney, or through a third-party vendor), and consult your specific plan language and repayment agreement before making a decision.
The Bottom Line
When your LTD insurer tells you to apply for Social Security Disability, it is usually about offsets and cost savings. However, SSDI approval can also provide valuable support for your disability claim and help you in other ways. If you have questions about your policy, an overpayment demand, or a denied claim, speaking with an attorney who handles long term disability cases can help you protect your benefits.
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