Do You Have to Pay Long Term Disability Back?
Discover when long-term disability benefits might require repayment and how to navigate policy complexities and potential demands.
Long-term disability (LTD) insurance provides a portion of an individual’s income when a qualifying injury or illness prevents them from working for an extended period. These benefits offer financial stability. While LTD benefits are a lifeline, recipients may be required to repay a portion to their insurer. This potential repayment is often unexpected, making it important to understand policy terms.
Understanding Policy Terms and Offset Provisions
Repayment obligations for long-term disability benefits stem from the specific terms of the individual’s insurance policy. LTD policies typically include “coordination of benefits” clauses, designed to prevent claimants from receiving more than a certain percentage of their pre-disability income from combined sources. These clauses ensure that the total income from all benefits does not exceed a predefined limit, often between 50% and 70% of previous earnings.
Policies commonly define “other income” or “deductible income” that can reduce or offset LTD benefits. Examples include Social Security Disability Insurance (SSDI) benefits, Workers’ Compensation benefits, and certain retirement or pension benefits. Other deductible sources include severance pay, unemployment benefits, or income from part-time work while disabled. Offset provisions vary between policies, so policyholders should review their plan documents.
Common Situations Leading to Repayment
Several common scenarios can lead to a long-term disability recipient facing a repayment obligation. A frequent cause is the retroactive award of Social Security Disability Insurance (SSDI) benefits. LTD insurers often require claimants to apply for SSDI, and if approved, the insurer will reduce the LTD payments by the amount received from Social Security. When SSDI is approved retroactively, covering a period during which the LTD insurer already paid full benefits, the insurer will seek to recover this “overpayment.”
Another situation involves Workers’ Compensation settlements or awards. If a claimant receives Workers’ Compensation benefits, their LTD policy may consider these as “other income.” The LTD insurer can then demand repayment for any overlapping benefits received. Similarly, settlements from personal injury lawsuits or other third-party claims related to the disability can trigger repayment. Many LTD policies include subrogation or reimbursement provisions, allowing the insurer to claim a portion of such settlements.
Finally, administrative errors by the insurer can also result in overpayments. These errors might include miscalculations, incorrect processing of paperwork, or untimely adjustments after a change in the claimant’s income or work status. Even if the error was not the claimant’s fault, the insurer can seek recovery of the overpaid funds.
Responding to Repayment Demands
Upon receiving a repayment demand, verifying it is an important initial step. Recipients should carefully review the repayment notice, comparing it against their policy terms and their personal records of benefits received and other income sources. It is important to maintain detailed documentation of all communications with the insurer, payments, and relevant financial changes.
Insurers typically offer several methods for repayment. These may include deducting the overpayment from future LTD benefits, requesting a lump-sum payment, or establishing a structured payment plan. Some policies include a reimbursement agreement stipulating repayment of any SSDI backpay. Open and prompt communication with the insurer is advisable to discuss the alleged overpayment and explore potential repayment arrangements.
If the repayment demand is complex, disputed, or involves a substantial sum, seeking professional advice is recommended. Consulting with a financial advisor or a legal professional specializing in disability insurance can provide clarity and guidance. These professionals can help interpret policy language, verify the accuracy of the overpayment calculation, and negotiate with the insurer on the claimant’s behalf.