Once again I’ve been receiving quite a few calls concerning SSDI overpayments due back specifically to Unum. The questions are always the same, “Do I really have to pay back all this money?”, and “Why do I owe back my children’s money?” Although I’ve written several good posts about SSDI overpayments, and Payment Option Forms, claimants persist in not understanding the necessity of reading and understanding policy contracts long before a period of disability begins. This week, however, the nature of the calls took a slightly different turn.
One gentleman called me this week to ask about an SSDI overpayment with Unum. Apparently he received a little over $40,000 from SSA as a lump sum payment since his date of disability. He arrived at Lindanee’s Blog by searching on the Internet, and after reading he has to repay the money, called me to ask if there were any other alternatives. His comments were, “I’ve never had this much money in my hand’s before and given my station in life it’s unlikely I will ever have this much money in one place ever again. I don’t want to pay it back.”
My question in return to this stressed claimant was, “Did you sign Unum’s Payment Option Form promising to pay back the overpayment if the company paid you unreduced benefits?” to which he replied “Yes I did.” This brings up an interesting dilemma, “If you signed the The Payment Option Form promising to pay back the money, then perhaps you should pay it back”, was my response.
DCS, Inc. receives several hundred calls each year inquiring about insurance lump-sum overpayments and the interesting thing is, “no one really wants to pay the money back”. It is true, for many middle class employees, holding a check for over $40,000 is a bit overwhelming and nearly impossible to let go of. A form of mental bargaining results, “Well, do I have to give back the money for my children?”, or “I don’t think the amount Unum says I owe is correct”, and finally, “I paid my bills, saved my house, bought my kids clothes for school, purchased my prescriptions, and now I don’t have any money left to pay back.”
In prior posts I’ve explained in detail the choices claimants have when asked to sign the Payment Option Form. Nearly all disability insurers have these forms although they may be named differently. The Payment Option Form asks claimants to CHOOSE whether they would like to receive reduced benefits (via an estimate) while waiting for SSA to make a decision, or to receive UNREDUCED benefits with the promise of paying back to Unum any overpayment owed. Since most insureds want the most money they can get since benefits have already been reduced to 60% or less of pre-disability earnings they opt for receiving unreduced benefits.
Eventually, claimants are awarded SSDI and may find themselves holding a check for $40,000…..hmmmm…how can I get out of paying this money back? The purpose of this post is not to get into the circumstances when it might be appropriate to not give the money back at least in a lump sum, but to point out “good faith and fair dealing” on both parties. Let me give you an example.
Everyone knows when you buy a new vehicle a purchase agreement is signed with the dealer, and also with a bank or lender. You get possession of the vehicle because you promise to pay back the purchase price. If you thereafter refuse to make the monthly payments what happens? The bank arrives at your home and takes possession of the vehicle.
Disability insurers act in much the same way. Claimants sign the Payment Option Form choosing to receive unreduced benefits and make a promise to pay back the money. If the money isn’t given back, most insurers, including Unum, immediately reduce monthly benefits to $0 to recover the cosy of the “loan” it gave the claimant while waiting for SSA to make a decision.
If insureds do not INTEND to repay their SSDI overpayments and still sign the Payment Option Forms promising to pay it back, it could be alleged they were committing insurance fraud. Intent is hard to prove in fraud cases and I guessing that’s why these situations are rarely prosecuted as fraud. All the insurance companies want is to be repaid the money they “loaned” to claimants based on a promise to repay at a later time.
Claimants then often ask, “Well, what if I don’t sign the Payment Option Form?” My response is, “Insurers are way ahead of you and have closed that loophole in the policy contract. Some policies contain wording that if you don’t sign the Payment Option Form an estimate will be taken from benefits and/or benefits won’t be paid at all.”
The issue of SSDI overpayments is extremely complex because it crosses lines of cultural class, financial needs, medical disability and entitlement. To most middle class employees $40,000 IS a great deal of money to have in one’s hands all at once. To have to give it up in a lump sum is indeed enough to cry about.
What is the solution then? To avoid these situations all together claimants need to do the following:
- Obtain a copy of the Certificate Booklet (policy) of insurance from employers as soon as you are enrolled and read it.
- With a pencil and paper figure out based on your current monthly salary what money would be paid by the policy in the event of a disability.
- Subtract an estimate for SSDI if your disability is indeed permanent and an application for benefits will be made. (Estimates can be obtained online at the SSA website.)
- Take into consideration SSDI benefits are generally 100% taxable and will be reported as income on the next tax return.
- If there is a shortfall of family income, plan for other sources of income in case of medical emergency, including costs of health insurance (COBRA), when the employer terminates you.
- Have a Plan B. Plan in advance what you will do, if the insurance company fails to pay benefits. DO NOT depend on group STD/LTD benefits long-term. These benefits are never certain and can be denied at any time. Plan the future and take responsibility for what could happen if you become disabled.
- When asked to sign the Payment Option Form, select to have an estimate for SSDI taken from your benefit while waiting for SSDI to make a decision on your application. Then, when you are holding the SSDI check for $40,000 you will be able to keep it, or at least most of it.
- If your group LTD policy contains a COLA you can request the COLA not be paid while SSDI is pending, or if COLA is paid know that you will be asked to repay the amount of COLA paid (assuming an estimate was made.)