If you receive Long-Term Disability (LTD) benefits in New Jersey, you may be shocked to hear your insurer ask that you file a Social Security Disability Insurance (SSDI) claim. Understanding the reason for this can help you tackle the process efficiently when the time comes.
Why does your insurer require an SSDI application?
Most LTD policies include an “other income offset” provision. This clause allows the insurer to reduce your monthly LTD payment by the amount you receive from other disability income sources, including SSDI.
From the company’s perspective, SSDI approval lowers the amount it pays out of its own reserves each month. Your total disability income may stay roughly the same, but a larger share of it comes from the federal government rather than the insurance company.
This provision is not unique to any single carrier. It is a standard feature in both employer-sponsored group plans governed by the Employee Retirement Income Security Act (ERISA) and many individual disability policies sold in New Jersey.
What happens if you refuse?
Your LTD policy likely includes a clause that requires you to apply for all available benefits, including SSDI. If you miss the filing window your policy sets, the insurer may act against your claim.
In many cases, the company will estimate what SSDI would have paid you and subtract that amount from your LTD benefits anyway. Carriers sometimes call this a “deemed offset” or “constructive offset.” It can sharply cut your monthly payment even though you never saw a dollar from Social Security.
Some insurers go further and suspend or end LTD benefits entirely for not following policy terms. The result is a loss of income that an SSDI application could have avoided.
How does the SSDI process overlap with LTD?
Filing for SSDI while you already receive LTD benefits can feel redundant, but the two programs use different standards to evaluate disability. Your LTD policy may define disability based on your ability to perform your own job, while SSDI applies a federal five-step process that considers your age, education, work history and medical condition.
Can your insurer reclaim SSDI backpay?
When Social Security approves your SSDI claim, it usually awards a lump sum covering the months starting after your mandatory five-month waiting period up to the approval date. Your LTD insurer will likely claim that this lump sum created an “overpayment” because it was paying full LTD benefits during the same period SSDI should have been offsetting those payments.
The math can be confusing. If your LTD benefit is $3,000 per month and your SSDI award is $2,000 per month, the company may seek repayment of $2,000 for each month of overlap, which can add up to a substantial sum depending on how long the SSDI process took.
Which factors should you consider?
The relationship between your LTD and SSDI claims is more connected than it may appear at first. An SSDI denial does not automatically mean your LTD benefits are safe, and an SSDI approval does not mean your total income will increase.
You should also pay close attention to your LTD policy’s deadlines for filing an SSDI application. Missing these deadlines, even unintentionally, can give the insurer grounds to reduce or cut off your benefits through a deemed offset.
