Mason Waring: Hello, my name is Mason Waring. I am an attorney in-partner at Chisholm
Chisholm and Kilpatrick. I am joined here today with my colleague Attorney Leah Small.
We, devote much of our practice to representing disabled workers
and their long-term disability insurance claims. We handle initial claims, appeals, and court
litigation. These are individuals who either purchased long-term disability insurance company
policies themselves from the insurance company or they received this coverage as an employment
benefit from their employers. Today, we are going to talk about long-term disability benefit
offsets. And so, if you have long-term disability insurance coverage, you might think.
I purchased a policy that has a certain benefit or the policy that I get through my employer pays me,
say sixty percent of my pre-disability earnings. That is what I am going to get if I am disabled
and otherwise entitled to benefit under the policy. That may not be the case. If you are
receiving other income benefits like Social Security, if you are, maybe you can not work
full time in your job and you working part-time and earning some income. Those dollars may reduce
your monthly long-term disability benefits. So, this is an important thing to consider
for your financial planning purposes, if you are not disabled, but you have this coverage.
Or if you are disabled and you basically want to understand what your monthly
benefit is comprised of. These offsets are important. So let us get started, Leah.
What are long-term disability benefit offsets? Leah Small: So you touched on this a
little bit. Generally, if you become disabled and have long-term disability coverage, you
will receive a monthly benefit that is either a fixed dollar amount or an amount that is a certain
percentage of your pre-disability earnings. And we normally refer that as your gross long-term
disability benefits. However, as you mentioned in many of these policies, especially ones that you
receive as a benefit through your employment. There are provisions that allow the insurance
company to deduct other benefits or income you are receiving from your gross LT benefit.
Often, these may be labeled other income benefits or deductible sources of income.
But we, commonly refer them as benefit offsets because they reduce the amount, the insurance
company has to pay you each month. And when the amount that you get after those offsets is what
we referred to as your net monthly LTD benefit. Mason: What are some common offsets that
we see in long-term disability policies? Leah: So, I will start off by saying,
It is important for you to read your own policy because there can be different offsets
in different policies. But there are some that we see in almost every policy that has these
provisions. So some common ones, as you mentioned include Social Security. Both disability from
Social Security and retirement benefits, workers comp benefits, unemployment benefit you applied
for unemployment if you receive severance from your employer, that can be an offset.
If you receive retirement benefits, state disability benefits. Benefits from the VA due
to disability pension benefits, salary continuance benefits, sick pay. There is a lot. So again, it
is important to read your policy. Again if you got settlement, a personal injury settlement, that can
be an offset. And also as you mentioned, if you are working maybe part-time or another occupation,
your work earnings could be an offset as well. Mason: Right. So it could be earnings, but
it could be other. You could receive other types of money and I think, I just want to emphasize
for personal injury settlement. And so, if you are disabled maybe because of injuries from a car
accident or something like that and someone else was responsible and you recover funds,
the insurance company may be entitled to some or all of those funds.
So, you want to talk to your personal injury lawyer about this and make sure you are taking
all these instance into consideration. Let us talk next about calculating the offsets. What are some
common things we see as to how the insurance companies calculate the offsets, Leah?
Atty. Small: So again, the long-term disability policy will explain how your net benefit is going
to be calculated if you are receiving these other income benefits that are considered an offset.
And often that calculation depends on the type of other income benefit that is involved. Sometimes,
it is just a straight dollar-for-dollar reduction and that often is the case with things like state
disability or pension benefits, or sick pay. So if your gross long-term disability benefit is
two thousand dollars per month, but you receive a thousand dollars per month and pension benefits.
The insurance company will just deduct that thousand dollars from your gross LT benefit
and only pay you a thousand dollars. So your total benefit from both sources equals that
two thousand, but it is not always a straight dollar-for-dollar reduction. We see this a lot
in Social Security benefits. Often, if a claim is disabled and they are getting Social Security,
they have a base Social Security benefit. But the Social Security Administration will also
increase oftentimes the benefit each year, due to cost of living adjustments.
But often long-term disability policies, the insurance company will only offset that
base benefit, they would not increase the offset as your Social Security benefit increases. Not
always. So again, read your policy to see how it is calculated. But oftentimes, those
increase in Social Security are not considered offsets. Similarly, as we talked about the
personal injury settlements, the insurance company might be entitled to all or portion of that
settlement. If those injuries are what caused your disability. However, oftentimes, your
policy may specify that they only get the portion of the settlement that is attributable to loss of
earnings. So for example, if you receive a hundred thousand dollars in a personal injury settlement,
but only thirty thousand of that is for damages your loss of earnings, the insurance company may
be able to offset that thirty thousand, not the full hundred thousand. Finally, if you are working
while disabled, it can get a lot more complicated. There a lot of formulas insurance company use to
determine how they are going to take your work earnings into your account.
And because they can vary so widely, it is really important to read your policy to make sure you
understand what that formula is, and how your work earnings are going to impact your LT benefit.
And it is also important to keep in mind if you are working and receiving long-term disability
that some policies put a cap on the amount you are allowed to earn and still receive LT benefits. And
if you exceed that cap, your manifest might be terminated. So it is important to keep that in
mind as well. Mason:
Thinking of caps, what happens when the offset exceeds or simply erases the LTD benefit?
Leah: Generally, even if the offsets essentially erase the LT benefit,
you will still receive some amount each month from the insurance company. Most LTD policies
have what we call Minimum Benefit Provision, which is the lowest amount the insurance
company will pay you each month. And often, again, at various original policy, but usually
it is typically the greater a hundred dollars or ten percent of your gross monthly benefit.
So this is essentially a guaranteed amount that you receive even if other income offsets are
greater than your gross LTD benefit, and you may also receive the minimum benefit if your offsets
are not greater, but they would reduce your LT benefit to below the minimum benefit. Then
you will still get, the minimum benefit. So for example, again, if we assume your gross LT benefit
is the two thousand dollars per month, but you are receiving twenty-one hundred dollars and other
income benefits each month, your net LT benefit would likely be two hundred dollars per month,
even though the offsets are greater than your gross LT benefit. Alternatively, if your offsets
are nineteen hundred dollars per month, if we did a straight reduction, the insurance company would
only have to pay you a hundred dollars, they will still pay you that two hundred dollars
per month if that is the minimum benefit. Mason: Sometimes, income that is subject
to offsets comes in on a monthly basis like part-time work earnings, but sometimes it is
a lump sum like a personal injury settlement or a retroactive award on Social Security, how does the
insurance company typically handle that? Leah: So typically, if the award of
other income benefits covers a former time period during which you received your gross
monthly long-term disability benefit. There is likely going to be an overpayment on your
long-term disability claim and you are going to owe money back to the insurance company.
Because this means that if you receive that lump sum retro award, that means that the insurance
company should have been offsetting those other income benefits all along,
but they were not, so they paid you more than you were entitled to. Often when this happens,
almost the entire lump sum retro award that you get, ends up going back to the insurance company.
Similarly, if you receive a lump sum that does not cover a specific time period which is often
the case with personal injury settlements. Often, the insurance company will assign a time frame
to determine how much it should deduct from each your monthly benefits, to take that offset.
Mason: Leah, what advice would you have for our viewers who might say,
"Why should I apply for say, Social Security benefits, if they are just
going to go to the insurance company?" Leah: Well, I will say one oftentimes the
insurance company can make you apply for these benefits, you may, they may not have a choice.
Many LT policies require the claimant to apply for all other income benefits that you are [inaudible]
for, mainly because they want to take advantage of that offset and pay you less each month. Further,
these policies often provide that if you do not apply for these other income benefits, the
insurance company can make you begin, estimating the amount you would get, if you did apply and
receive them and start offsetting that amount so you can end up in the position where the insurance
company is taking the offset, but you are not actually receiving the other income benefit and
you're in a worst financial position. Mason: Also in some circumstances,
there is still a benefit to you, if there was a complete offset you have the minimum benefit.
But also the insurance companies you said earlier Leah, will only usually basically
offset on the original benefit amount and Social Security over time if you are on claim,
if Congress approves the cost of living increase, your benefits will go up and they typically do not
offset that amount and additionally after you've been on social security for a time,
you may become medicare-eligible. And so there are some other reasons to apply for Social Security.
It does not work out for everyone. And so there are certain people and certain tax scenarios
where it is less advantageous to apply for Social Security. But again, you may be required to under
the terms of your policy. So, this underscores why it is important to read your policy,
understand what your rights and obligations are. Because if you ignore it, you could really wind up
in some trouble down the road on that. So, what should our viewers do if they are on claim and the
insurance company begins to apply an offset? Leah: So as we said multiple times. First
thing they should do, is read their policy to determine if the offset is an appropriate one.
As we mention, your policy should outline what other income benefits are considered offsets.
So you want to read that and see if what the insurance company is offsetting,
is proper under your policy. It is also important to read the policy because there can be a lot of
nuances involved with these offset provisions. For example, although other income you are receiving
may fall into an offset category. Generally, it may not properly be an offset on your policy
for another reason. This comes up a lot with pension benefits. So your LT policy might say,
we get to offset pension benefits you are receiving. But your policy might also say, that it
only takes offsets for benefits you are receiving as a result of the same disability for what you
are receiving long-term disability benefits. If you are receiving pension benefits, but
not because of your disability, then it would not be appropriate for the insurance company to take
that offset even though as I said pension benefits generally are an offset. If you review your policy
and you have determined that is appropriate for the insurance company to take the offset, the next
step is that you should calculate to determine if they are taking the correct amount. So check
the insurance company's calculations to make sure they are doing it correctly. For example,
we have talked about, are they including a cost of living adjustment in their offset when it should
not under the policy? Are they offsetting your entire personal injury settlement when they should
only be taking a portion of it? Those are the kind of things you want to look for to make sure they
are taking the correct amount each month. Mason: Sorry to interrupt Leah. But
you could put that on the insurance company and that is something that we do sometimes. We say,
"Look, you are saying that you are going to apply an offset x amount each month. Can you please
provide us with a detailed computation as to how you arrived at that and what you base it on?"
And that is a good starting point to understand where they are coming from. Two more points, this
discussion made me think about some experiences we have had. In one tricky area, it is 401(k)
distributions. And so we have seen circumstances where clients were financially strained after
going out of work on disability. Some of them maybe they are LTD benefits were terminated and
the insurance company is still going after them for an offset and the trying to pay a mortgage
medical expenses and so forth. So they looked in their 401(k) to take a distribution. It is a tough
thing to do because there are some serious tax consequences associated with that. But also there
could be some offset implications and many plans will provide that the insurance company will treat
the percentage of your 401(k) that was from employer contributions as income that is subject
to offsets. And so, if you had employer matching or something like that and let's say the employer
put in fifty percent, you put in fifty percent. There might be, the insurance company might offset
fifty percent of the distribution you take from your 401(k). So before you make that decision, you
really need to understand again underscoring why it is important to read your policy and understand
what your rights and obligations are. Because we have seen some really hard circumstances
surrounding that. Another point is Appeal. So,
we have seen insurance companies they different positions on this. But our senses and we
typically treat and offset as an adverse benefit determination that has appeal or rights associated
with it. So these claims are broken down. When we look at the spectrum of the LTD claim, we have the
initial claim process, we have the administrative appeal process and we have court litigation.
And if this is an Erisa governed policy, which is typically a policy that you would get,
a cover to you get through your employer. You got to go through this administrative appeal process,
but you need to follow the rules. And often, if you do not file that appeal within the time frames
required, you lose your rights to the appeal. You may not even be able to pursue claims at court. So
in many cases, if you get noticed that they are applying an offset, you want to either get an
appeal in within one hundred and eighty days of notice of that, if you are going to appeal it
or at least get some written confirmation as to what your appeal deadlines are around
that. So you do not want to delay on this because if you let too much time pass,
you may lose your rights. May, because it depends on the wording of the plan and the circumstances,
but you may lose your right to appeal. And so if you get notice of an offset,
it is time to investigate right away. Do not delay doing that. And if you have questions,
reach out to an experienced long-term disability lawyer, we are that. And
these are, I think if you had some takeaways from this video, this is a complicated issue.
Your policy can be complicated and applying your facts is not always straightforward.
So if you are having or if the insurance companies applying an offset, read your policy,
understand it, do not delay. You can reach out to us and we would be happy to talk to you to
see if we can help. It costs nothing to speak to us to see if we can help you. And when we do help
people with these issues, we review the policy, we consider the facts carefully, and we do what we
can to protect your rights to make sure that you are getting the benefits that you work hard for.
Leah, do you have anything to add? Leah: I would just emphasize at you guy,
that this can be very complicated. And these LT benefits are also very important to people
who are disabled and unable to work. So I said, they should examine it carefully. Do not just let
the insurance company say "I am taking this offset and just let it go." Make sure they are doing it
properly and accurately. And if you are not sure, contact an experienced attorney like us to help
you figure that out. Mason:
Great. Well Leah, thank you very much. And thank you all for tuning in today. Take care.
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