If you are receiving long term disability benefits, you can be certain that your LTD carrier will require you to file for Social Security disability. What is the practical effect of pursuing Social Security disability and how should you handle the insurance company’s request.
Most of the LTD policies I see are company provided. These company sponsored policies are sometimes called “ERISA policies” because the rules that govern how they are administered are set out in a federal law called the Employee Retirement Income Security Act of 1974 (ERISA).
If you worked for a company that gave you the option of purchasing short term and long term insurance as a payroll deduction, you almost certainly have an ERISA policy.
Under the terms of your ERISA policy you are required to apply for Social Security disability if your LTD claim is approved. Why? Because the insurance company has the right to offset what it pays you by what you receive from Social Security.
Here is an example – let’s say that your LTD policy pays you $2,500 per month if you meet the insurance company’s definition of disability. If your Social Security disability benefit is $2,000 per month, then the insurance company will reduce what it pays you to $500 per month since SSA is paying $2,000.
Your monthly payment remains at $2,500 per month but it will come from two sources instead of one.
You Do Not Get to Keep Your Social Security Disability Lump Sum Payment
Unfortunately this offset also applies to the lump sum payment that SSA will send you for past due benefits. Assuming that the onset date for Social Security disability was after the start date of your LTD payments, the insurance company will require you to turn over your lump sum payment when you receive it.
Needless to say, it is very upsetting to receive a check in the mail from SSA in the amount of $30,000 for past due benefits, only to have the LTD carrier demand that you turn that payment over to them.
Their argument, by the way, is that your monthly premiums were kept low by the expectation that your Social Security disability payment would reduce the insurance company’s obligations.
The Insurance Company Will Pay Your Legal Costs in Your Social Security Disability Case
The only positive element to this arrangement is that the LTD carrier will not require you to repay the portion of your lump sum that was used to pay your Social Security attorney. You will not have to pay back money you never received.
So if your total past due payment was $24,000, and SSA paid your attorney 25% ($6,000), the insurance company will ask you to pay them back $18,000, since that is all that you actually received.
In essence, therefore, the LTD carrier ends up paying your legal fees to win your Social Security disability claim.
Why Bother Filing for Social Security Disability at All?
Why, you may ask, should you even bother filing for Social Security disability if winning will not change what you receive each month?
There are two answers to this question.
First, you don’t really have a choice – the LTD insurance company will require you to file for Social Security disability. If you refuse they can cut you off completely.
Second, winning Social Security disability does give you a margin of safety. LTD companies can be aggressive when it comes to finding a reason to cut you off. They may claim medical improvement. They may base a termination on an absence of medical treatment. Further, many LTD policies change how they define “disability” after one or two years.
I have seen policies that define disability in terms of your inability to perform the duties of your own occupation for the first two years, then it changes to “any occupation” thereafter. I have also seen policies that limit payment to one year or two years if the underlying medical issue is mental health.
If you have Social Security disability in the “background” you are protected from arbitrary decisions by the LTD carrier.
Further, your Social Security disability payment will include cost of living increases and you will become eligible for Medicare.
So, while the advantage to you in winning Social Security disability may not seem important now, it actually can a vital safety net be down the road.
Should You Let the Insurance Company Choose Your Social Security Representative?
Finally, what should you do if the insurance company offers to provide you with a representative to assist with your Social Security disability claim? Should you agree to use their representative or choose your own?
In my experience, the companies that LTD carriers make available to LTD claimants are non-attorney representative companies who employ case managers to process your claim along with hundreds of others. The biggest complaint I hear about these non-attorney rep firms has to do with communication – you will typically have to go through a voice mail tree to reach a live person.
Further, to my knowledge, none of these non-attorney rep firms actually try cases. They hire contract lawyers to appear at hearings – I know this because in the past I did contract hearing work for several of these companies. At that time, the non-attorney rep firm would pay around $450 to $500 for a hearing. Typically I would get a file two or three weeks prior to the hearing and I would review the file and appear at the hearing.
I think that the bigger concern is one of confidentiality. Remember that the LTD company will be looking for a way to cut you off. By hiring one of their agents (remember these are non-attorneys who are not subject to rules about client confidentiality) you are making available to the insurance company all of your medical records. Further, any communication you make to the non-attorney rep firm becomes part of your file and can be used against you.
The good news is that every LTD insurance company I have dealt with has no objection if you choose your own attorney. Further, if you sign up with a non-attorney rep firm but later choose your own attorney the non-attorney rep firm will withdraw.
In my opinion any representative working on your disability case should be focused on one thing – helping you, and not serving the interest of an insurance company. This is my opinion – others may disagree.
Takeaways…
- So, what you can takeaway from this post is as follows:
most long term disability policies require to you file for Social Security disability - if you win your Social Security disability case you will almost certainly have to repay any lump sum you receive back to the insurance company
- the long term disability company will not make you repay the portion of your lump sum used to pay your Social Security disability attorney, so, in essence, they will be paying your legal fees
- you are not bound to use the non-attorney rep firm that your LTD carrier may offer you