Due to the number of questions we’ve been receiving lately about whether or not Unum (or any other disability insurer) can offset monthly benefits by the amount of family or dependent social security awards, we thought it best to address this issue once again.
DCS, Inc. always recommended to insureds they obtain a copy of their group policy at the time of enrollment, read it, understand it, and plan accordingly, knowing exactly how much family income there will be if social security is awared to the primary insured and their dependent family members.
Most group policies (taking Unum’s as an example) basically contain the following policy provision under the heading “What Are Deductible Sources of Income?“:
The amount that you, your spouse and children receive, or are entitled to receive as disability payments because of your disability under:
- The United States Social Security Act
- The Canada pension Plan
- The Quebec Pension Plan
- any similar plan or act
About 98% of group policies now allow for the above offsets (reductions) in monthly benefits since “non-integrated plans” require the payment of higher premiums.
Therefore, the answer is “Yes” – disability insurers can offset for both Primary and Family SSDI awards. The problem claimants have is when it comes time to repay the insurance company for overpayments. The comment we hear most often is, “How can Unum take the money from my children?”
The simple answer is that Unum, for example can recover the overpayment for your children’s SSDI dependent award because the policy says it is an offset. All employees and claimants should be well aware of what their duties are under the terms of their Plan as well as those of the insurance company.
It is a fact that most group disability plans do not address specifically the issue of overpayments and obligations to repay. Some do, but most do not.
In order to close this loophole, most disability insurers have a “Payment Option Form” offering the insured “options” to 1) receive a reduced monthly benefit while waiting for social security to make a decision, or 2) to receive an unreduced benefit while waiting for social security to render a decision.
Most insureds choose the “unreduced” option because they need and want more money which makes sense. But, when Social Security actually gets around to making a decision and pays you retroactive benefits, those same benefits will be due back to the insurance company, including any retroactive amounts you receive for your dependent children or spouse.
Currently, Unum is also requiring claimants to repay any COLA amounts because policy provisions describing COLA instruct the computation of the COLA percentage to be applied to “net benefits”, which is gross benefit – offsets. This can result in a repayment due back to Unum greater than the amount actually received from SS.
The key to this is for employees with group disability Plans to know in advance what is going to happen when a long-term disability occurs. Payment option forms, offsets, and repayment obligations should NOT come as a big surprise to anyone.
We’ve already posted an article on this Blog informing employees group disability plans are not to be depended on for permanent long-term financial support, and we encourage employees to consider carefully future consequences of permanent disability when covered by employer-sponsored ERISA plans.
DCS, Inc. would like to see less people on disability getting hurt by ERISA policies in 2010. This can be accomplished with several very important steps.
- Ask your HR Department to provide you with a copy of your group STD/LTD disability “Certificate Booklet” as soon as you become eligible under the Plan and enroll.
- Read the policy carefully paying particular attention to the definition of disability, pre-existing condition, amount of monthly benefits and offset provisions.
- Ask questions. If you do not understand the provisons, go back to HR and ask to have the provisions explained to you. (You may get answers, or perhaps not.)
- Plan for the future. What available income will you have if you become permanently disabled? How much money will you have to live on if you only get 60% of your salary or less if awarded Primary and Secondary SSDI? What if your insurance company denies your claim and you don’t have any income for 6-8 months? Then what?
- Research all available sources of financial assistance in your state, town, and community and obtain a copy of recent family income guidelines. Contact hospitals in advance and find out about free clinics and programs for health care. Check out Medicaid and find out if you would be eligible if your disability claim was denied and you were left without financial support. All of this information should be obtained well in advance of any unexpected disability.
DCS, Inc. supports all employees with employer-sponsored ERISA Plans. We encourage American employees with ERISA group Plans to obtain a copy of their “Certificate Booklet” and become knowledgeable potential claimants in 2010 – well in advance to having an unexpected disability that prevents you from working.
Employer sponsored group Plans are deliberately intended to limit or restrict the amount of money paid to encourage workers to return to work rather than to remain on disability long-term. As a result, workers need to plan financial alternatives and not depend of these plans for total financial support. Please – obtain a copy of YOUR policy and read it as soon as you can.