People who are eligible to receive short- and long-term disability insurance should know that any benefits they receive from other income sources could seriously reduce their monthly disability benefits.
Offsets are policy provisions that permit your insurer to deduct other sources of income you receive or are eligible to receive due to your disability. These provisions may only amount to a few sentences in your policy that indicate your insurer is authorized to deduct other benefits from your monthly sum. You can often find the details of what constitutes “other income benefits” under a separate section of the policy that explains how your insurer will implement these offsets.
What is an offset, exactly how do they affect your disability benefits, and what potential pitfalls and reductions should you expect?
Group disability policies have language about offsets, known as an offset clause or a right of offset , to ensure that claimants only receive a percentage of their pre-disability earnings (and—in the event of multiple insurers or indemnifiers—not the full amount of one’s pre-disability earnings from each source individually).
The following is an example of a typical group disability-insurance policy’s offset clause:
“The obligation of a party to indemnify any claim under this Article X shall be reduced by the full amount of any collectible insurance proceeds actually received by the indemnified party with respect to such claim or the underlying facts under any applicable policy or policies.”
Put simply, this clause reserves the insurer’s right to reduce its payments to you by the amount of payment you receive (or are eligible to receive) from other, third-party sources.
Sometimes, however, offset clauses say more. In addition to reducing future payments that insurers are required to pay you, insurers can include offset language that requires you to repay them for third-party payments that you have already received.
The following example of an offset clause contains repayment language:
“If the amount of any indemnifiable Losses, at any time following the payment of an indemnification obligation, is offset or reduced by the payment of any insurance proceeds, the amount of such insurance proceeds, less any costs, expenses, premiums actually paid or taxes incurred in connection therewith (including but not limited to any future increase in insurance premiums, retroactive premiums, costs associated with any loss of insurance and replacement thereof or self-insured component of such insurance coverage) shall be promptly repaid to the Indemnifying Party….” [emphasis added]
In each of these examples, your insurer (in whose policy such language is found) is the indemnifying party. Be wary of repayments that you may owe to an insurer for other payments you may receive—or expect to receive. If you have questions about this, talk to an experienced, long-term, disability lawyer.
If you become disabled and receive—or are eligible to receive—benefits from more than one source, offsets may affect you and reduce what you thought you would receive. Offsets work to make sure that you do not benefit from multiple sources in a way that stacks your benefits atop one another—creating over insurance . Offsets allow your long-term disability (LTD) insurance company to reduce the total amount of money that your policy requires it to pay you each month by the amount you receive—or are eligible to receive—from other income sources.
For example, imagine that you are set to receive $2,000 in group monthly long-term disability benefits. Then, you are also approved for $1,000 of monthly Social Security benefits. Rather than receiving both benefit amounts in full, your SSDI benefits would offset your LTD benefits, and you would collect $1,000 from your LTD insurer.
Social Security disability insurance (SSDI) and Supplement Security Income (SSI) benefits are some of the most common offsets. SSDI pays monthly benefits to you if you become disabled before you reach retirement age and cannot work. The Social Security Administration paid an average monthly disability benefit of $1,166 at the beginning of 2016.
Some states have their own disability insurance programs, including California, New York, New Jersey, Rhode Island, and Hawaii.
In California, SDI can provide as many as 52 weeks of full disability insurance benefits totaling up to 55 percent of your earnings in the highest quarter of your base period before disability. For California SDI claims beginning on or after January 1, 2017, weekly benefits can range from $50 to a maximum of $1,173.
Workers’ Compensation is a form of disability insurance, where the employer provides wage replacement and medical benefits to employees injured on the job—in exchange for employees’ forfeiting their right to sue under these circumstances. LTD plans will likely partially offset for payments received through workers’ compensation.
Veterans may receive disability benefits through their VA benefit packages. If this applies to you, LTD plans may partially offset for benefits received through the VA.
Most employers have some form of sick pay, where employees continue to receive income for a set amount of days of absence related to sickness. Some employees may accrue a large number of these paid sick-leave days during periods of good health. LTD plans will likely offset payments that a policyholder receives from an employer for sick leave.
If a third party caused the injury that resulted in your disability and you win any sort of settlement, also known as subrogation , insurers will consider that settlement an offset to your monthly disability benefit. Sereboff v. Mid Atlantic Medical Service, Inc. —a 2006 U.S. Supreme Court case—provides a perfect example.
The Sereboffs were beneficiaries under a health insurance plan provided by Mid Atlantic, covered by the Employee Retirement Income Security Act (ERISA).
The plan’s policy included an “Act of Third Parties” provision ( the offset clause ). It required any beneficiary injured by a third party’s act or omission to reimburse Mid Atlantic for whatever the third-party paid for the injuries it caused (only if applicable—if the beneficiary actually recovered compensation from the third party).
After the Sereboffs’ accident, the Mid Atlantic plan paid for their expenses. But after the Sereboffs settled and received benefits from the third-party who caused their injuries, Mid Atlantic sued the Sereboffs for the medical expenses it paid on their behalf. The U.S. Supreme Court ruled in Mid Atlantic’s favor.
As you can see, U.S. law allows disability insurers to offset amounts that beneficiaries ultimately receive or are eligible to receive from third parties. Remaining informed about your group disability policy helps ensure that, in the event you have to repay benefits you will receive (or have received) from your insurer, you only repay what your policy requires you to repay and not a penny more.
If a third party injured you and paid you a settlement, and your disability insurance company requests (or has already requested) that you repay certain benefits that it provided before you received your settlement, contact an expert, long-term disability attorney to ensure that you pay back only what your policy requires.
Offsets allow insurers to pay less money if you receive payments from “other income” sources. Many group disability insurance carriers also argue that offsets help keep policy premiums low.
While many policyholders think offsets do not apply to them—for example, if they are not receiving Social Security Disability, State Disability Insurance, or workers’ compensation benefits—their policy language may state otherwise.
In many cases, you will find that insurers may require you to apply and appeal Social Security Disability, State Disability Insurance, and workers’ compensation if any of those programs are relevant to your situation. Learn more about what to do when the insurance company demands that you apply for other benefits.
If your employer provides your group disability insurance plan, the Employee Retirement Income Security Act of 1974, or ERISA , likely governs its provisions. ERISA defends the interests of employee benefit plan beneficiaries. ERISA creates certain requirements, by which plan sponsors (insurance companies) must abide. Though ERISA is a complex system of federal provisions, the overarching requirements are relatively straightforward. These requirements include:
The protective laws of ERISA only apply to private (non-government) employers that offer certain benefits, including disability insurance coverage. ERISA does not require employers to provide any plans to employees. But when they choose to provide certain benefit plans—like disability insurance—ERISA sets minimum standards for them.
ERISA, however, has become a complex system for both employers and employees. For group policyholders of ERISA disability insurance plans, ERISA establishes strict rules for filing claims and for appealing denials.
ERISA requires many deadlines and substantial submissions. If you are covered by an ERISA disability group insurance plan, ERISA requires that you generally appeal a denial, in writing, within 180 days of the denial. Failing to appeal—according to ERISA guidelines—will affect your ability to file a suit in federal court later. Talk to an experienced disability-insurance lawyer to ensure that you comply with ERISA if it applies to your group policy.
If you have an employer-sponsored group disability insurance plan, you may not remove the offset provisions from your policy. Your employer and the insurance company have already negotiated the terms of your group disability benefit plan. If you have a private individual disability-insurance plan, you may always try to negotiate with your insurer for better features, advantages, and benefits.
Insurance companies have no problem selling insurance policies but are not nearly as friendly when it is time to pay legitimate claims. Those who believe their insurance companies are treating them unfairly or cheating them—due to offsets—should contact an expert, long-term disability ERISA lawyer to ensure they receive the compensation they deserve.
If your insurer reduces your group disability benefits, it is essential to review your policy with an experienced ERISA lawyer and ensure the carrier takes the correct type and amount of offsets.
The insurance claims process—from application to approval—can take a long time.
Processing your application for SSDI or SSI benefits can take an average of three to five months, according to the Social Security Administration. Your benefit schedule, however, technically begins as soon as you file, making it common to receive a significant amount of retroactive benefits—also known as back-pay —in a lump sum. According to NOLO, Social Security can even pay you for as many as 12 months back pay.
When you receive this back pay, beware of any overpayments the delay might have caused. Insurance companies will state they have overpaid you for any months in which you received your full LTD and SSDI benefits, and will often demand you repay them.
The insurer may handle the overpayment in one of three ways:
As mentioned, overpayments exceed the total net amount that your group disability policies say you should receive. Of course, receiving disability benefits from several sources can lead to overpayments.
If your insurance company requests that you repay an overpayment, contact an expert, long-term disability attorney to ensure the correct back pay and overpayment amounts have been calculated.
If you have questions about the offset provisions in your group disability insurance policy, contact our top-rated long term disability insurance attorneys for a free consultation.
The legal team at DarrasLaw is experienced in handling both individual and ERISA-governed disability insurance claims and can help you understand your coverage, starting with an offset analysis that will explain what your policy should pay.
There is no risk involved in contacting DarrasLaw. If you have individual or long term disability insurance questions, our legal team is here to help. Call us at 800-898-7299 or contact us online .
