Chris Stein, CFP®
How do Social Security Disability and Insurance Work Together?
I received the following question about how Social Security Disability Insurance (SSDI) and long-term disability insurance benefits work together:
You have helped me in the past, and now my sister with Parkinson’s needs your expertise. While she was employed with Ohio Health, she paid into Long Term Disability (LTD) through Cigna. She is no longer employed and, so far, it looks like she’s approved for SSDI. She hasn’t received answers from Cigna on how long that LTD will last and if she still has to pay into it even though she is unemployed because of her disability. Also, will receiving LTD through Cigna affect her receiving SSDI, and is LTD considered income that will affect her SSDI benefit amount? She is devastated from all of this and needs your expertise to help her through this nightmare. Thanks again!
Social Security Disability and Private Insurance
The details of how Social Security Disability Insurance (SSDI) and private long-term disability insurance work together can only be clarified by contacting the insurance carrier, as they depend on the specific carrier and the specific policy. But, let me explain how I’ve seen it work in the past with other people in similar circumstances.
Basically, if you are collecting SSDI, the long-term disability coverage will only ‘top up’ the rest. As an example, say you qualify for $1,500 a month of SSDI benefits, but the long-term disability payments are $2,000 per month. You might get both, but in what I have seen in the past, the insurance company with the long-term disability policy is going to say, “Since you are getting $1,500 from Social Security, we’re only on the hook for the other $500, to top up to the $2,000.”
Typically, you will only receive a benefit from the long-term disability policy if the benefit payout is in excess of the Social Security disability amount that you’re qualified for. They treat it as a form of shared insurance coverage and see it as a way to lessen some of their exposure.
Qualifying for Coverage
The bar to qualify for SSDI is very high, and a lot of people will not qualify. The bar is much lower for long-term disability insurance to kick in. If you qualify for long-term disability insurance and not SSDI, the insurance company will then be on the hook for the entire promised benefit.
You can generally stay qualified for SSDI as long as you are not working and earning more than about $1,000 per month. That’s the basic threshold, earned from actual work while you are receiving the benefits. The long-term disability payments from the insurance company don’t count towards that limit, so your SSDI is not jeopardized by receiving disability benefits.
Will you still have to pay the long-term disability insurance premiums if you are receiving benefits from them? We can only offer a general answer. We are not long-term disability agents, so we’re basing this answer on other policies for long-term care (and not disability). Some carriers have policies that will waive premiums if you’re under claim, and other carriers do not. That is going to be carrier-specific and policy-specific, so the answer will have to come from your insurance carrier.
All your questions are answered in your policy. Two barriers to finding those answers are that: (1) many people don’t know where they put the policy, or (2) even with the policy in hand, it may be written in English, but it’s an English no one can understand. You may need to find someone who understands these policies and ‘insurance lingo’ to know what’s really going on.
For example, any local disability insurance agent might be willing to do this for you, more as a favor in hopes of getting additional business from you. Help can also come from people who don’t sell long-term disability coverage but are knowledgeable enough in insurance lingo to understand what the policy is saying. Your property and casualty insurer might be able to help, also as a courtesy. (Most insurance agents are not set up to charge you a fee – to read a policy for you, for example. They only make money if you buy something.)
Lastly, you can find local financial planners who can charge you for their time, who will review the policies for you and get any questions answered.
Best Next Steps
The best thing is to get on the phone with your insurance carrier and ask them directly what’s going on. Ask them all your questions. We often do that for people who counsel with us: we get both parties on the phone with us and interpret the answers from the insurance representative for our client.
You can do this on your own by reading the policy, then calling your insurer for answers to your exact questions. We gave you what we think are the answers, but we can’t be certain.
Then, if you believe the insurance company is misinterpreting the policy, and you don’t like how you are going to be treated, seek local legal advice. Find someone who deals with disability claims. Some lawyers specialize in that, and they can be sure that your insurer is living up to its end of the deal.