If you have long term disability insurance through your employer, you probably know that you are entitled to a benefit if you ever become unable to work because of injury or sickness. The amount of the benefit varies, but it is typically 50-60% of your salary.
However, what you may not know is that most long term disability benefit plans usually don’t even pay that much. Why? Because most plans contain “offset” provisions.
What are offset provisions? Offset provisions state that if you are receiving money for your disability from other sources, the plan can reduce your benefit by that amount. Typically, benefit plans contain offsets for such things as state disability benefits, Social Security disability benefits (both SDI and SSI), and worker’s compensation benefits, among other things. Plans can even offset for income that isn’t related to your disability, like pension benefits.
If this is all new to you, you might want to get an idea of how this offset could work for Social Security Disability Benefits. You can go to the SSA website to calculate an estimated benefit, which you can then use to estimate how the offset would reduce your long term disability benefit. Visit the SSA site here: http://www.ssa.gov/OACT/quickcalc/index.html
Because most people are entitled to at least one other form of disability benefit, this means that your employee benefit is usually not even the 50-60% amount stated in the benefit plan – it’s actually less. In fact, in some cases, your benefits from other sources can be large enough that your employee benefit is reduced to zero. Some plans will still pay a nominal minimum benefit in such cases, but some do not. In other words, even though you are disabled and eligible for an employee disability benefit, your benefit amount could be nothing at all.
Because the amount of your employee benefit is dependent on your receipt of other benefits, you must be very careful in deciding whether to apply for other benefits, and if so, how to do it. Realize however, that sometimes, you may not even have a choice as your disability plan may require you to apply for these other benefits. As employee benefit specialists, we can help if you have questions. If an insurance company is reducing your benefit because of offsets, and you think they have made a mistake, please contact us.