Understanding the offset provision in your LTDI policy

On Behalf of | May 7, 2022 | Long-Term Disability/ERISA

If you have an illness or injury that’s going to keep you out of work for an extended period, you’re no doubt thankful that you have long-term disability insurance (LTDI) through your employer. This can replace a portion of your income every month.

Most LTDI policies require people who claim benefits to also apply for SSDI. That requirement would be included in your policy under something called an “offset provision.” Basically, that provision requires you to pay back any benefits you receive from SSDI for the period when you were still receiving LTDI.

The approval process for SSDI typically takes considerably longer than LTDI insurance from a private insurer. It can also be much more difficult to qualify for SSDI.

How LTDI and SSDI work together

If you are approved for SSDI, that’s when an offset provision will come into play. For example, say that your LTDI benefits kicked in a month after you left work. Your SSDI approval likely took much longer – perhaps even a year or more. 

Your first SSDI payment will be a lump sum “catch-up” payment to cover the period when your application was being processed. If you have an offset provision in your LTDI policy, you will be expected to repay at least a portion of the benefits you received during the months included in your catch-up SSDI payment. 

You may continue to receive both LTDI and SSDI benefits. However, your LTDI will only pay the difference between what your policy provides and the amount paid by SSDI. Say that your LTDI pays $4,000 per month and your SSDI pays $1,000. Once your SSDI kicks in, you’ll only receive $3,000 in LTDI.

This can all be very confusing at a time when you’re already not at your best. The last thing you feel like doing when you’re ill or injured is reading the fine print of an insurance policy. However, it’s crucial to take advantage of the employer-sponsored insurance benefits to which you’re entitled and to take the required steps so that you’re not hit with an unexpected bill or fines or penalties later.