The purpose of long-term disability insurance is to provide financial assistance to plan members who can’t work due to a medical condition. If you are covered by an employer-sponsored plan, the monthly long-term disability (LTD) benefits payable are based on a percentage of your pre-disability wages or salary and may be paid until you reach retirement age. If you purchased a private benefits policy, it typically pays you a fixed monthly benefit regardless of your previous earnings.
What you may not know is that your monthly cash benefits can be increased by cost-of-living adjustments (COLAs) as well as decreased by offsets of other benefits, earnings from employment income, and taxes. With so many variables involved, clients aren’t always sure what to expect and frequently ask us, “How much does long-term disability pay?” In this blog, we explain the different factors that insurers consider when calculating your benefit amount and how a disability lawyer can help.
Calculating Your LTD Payments
Insurance policies usually state the maximum amount the company will pay, which can range from $4,000 to $25,000 a month. When doing benefit calculations, your insurance provider will look at the following factors.
Your Pre-Disability Income
A long-term disability plan typically pays anywhere from 50% to 80% of your pre-disability earnings, up to a maximum amount. These earnings are usually the monthly wages or salary you were earning before you became disabled, but some policies include bonuses, commissions, and overtime compensation as well. If you aren’t sure what types of income are included in your disability payments, you can review a copy of your policy to confirm or speak with your company’s Human Resources Department.
Note: Many disabled workers seek to accommodate their condition by asking their employer to reduce their hours or assign them to a less stressful position (which often pays less). Long-term payments are often calculated using your pre-disability wages or monthly salary, so transitioning from a full-time to a part-time job could drastically cut your monthly benefits, as your pre-disability earnings will be lower than when you were working full-time.
The Cost-of-Living Adjustment
When your individual policy includes a cost-of-living adjustment (COLA), you can expect your benefits to increase by 1% to 3% annually. COLAs are generally indexed to a well-known measure of inflation, such as the Consumer Price Index (CPI), and may be either part of your basic coverage or available as an optional rider.
Your monthly policy benefit won’t change with the times unless your LTD policy has a COLA provision. Your monthly check may seem sufficient at first, but inflation can quickly devalue it. Adding a cost-of-living increase rider to your LTD insurance policy helps maintain your financial security and quality of life.
Benefit Payment Offsets
Many LTD policies include offset provisions for the deductible income you receive while collecting benefits. This means that the insurance carrier will deduct your other income from your monthly LTD benefits. You should take offsets into account when determining the amount of your long-term disability benefit.
One of the most common sources of deductible income is Social Security Disability Insurance. Almost all LTD policies require you to file for Social Security disability since LTD insurance carriers can deduct your SSD payments from your LTD payment. In other words, if you receive $1,600 in LTD benefits and Social Security approves you for $1,200, you will receive the full $1,200 from Social Security, but only $400 from your insurance carrier, for a total of $1,600. Typically, when Social Security benefits are offset, only the base benefit amount is offset, and cost of living adjustments are not.
Other common sources of deductible income include:
- Unemployment benefits
- Workers’ Compensation benefits
- State disability benefits
- Veterans Affairs benefits
- Employer-sponsored retirement benefits
- Legal judgments or settlements (e.g. a personal injury claim)
- Sick pay
- Salary continuance
Your long-term disability policy should explain how your net benefit amount is calculated if you are receiving deductible income like Social Security Disability or Workers’ Compensation.
Working While Collecting LTD Benefits
If you return to work while on long-term disability, you could lose your benefits or see your monthly payments reduced. It depends on your policy, however.
- In some cases, you can still work without losing your eligibility for benefits if you have an own-occupation policy. This type of policy covers you while you’re unable to carry out the duties of the specific occupation you held before becoming disabled.
- With an “any occupation” plan, you won’t get benefits unless your medical condition prevents you from doing any kind of work. When you begin working while receiving benefits under this type of LTD plan, your monthly benefit payments may be reduced or your employment may be viewed as proof that you are no longer disabled.
It is important to note that after two years, many insurance policies shift their definition of disability from the inability to work in your “own occupation” to any occupation at all. Your policy should specify whether this transition will occur in your case.
Long-Term Disability Overpayments
An overpayment means you have to repay the insurance company the amount of additional income that was supposed to be offset but wasn’t. An overpayment on your claim may result if you receive other income during the period when your long-term disability insurance company pays you benefits. It is also possible to receive an overpayment when you receive a lump-sum payment of other income benefits covering a retroactive period of time, such as when you are approved for SSDI benefits.
How to Get the Most Out of Your LTD Payments
The purpose of long-term disability insurance is to offset the financial burden of not being able to earn a steady income. Unfortunately, when you file for LTD payments, accessing all of your benefits may not be easy, even if you (or your employer) have paid all your premiums and your disability leaves you unable to support yourself and your family. The insurer may apply an incorrect offset, pay you less than you are entitled to, or wrongfully deny your valid claim. If this happens, a New Jersey LTD lawyer can help you secure the cash benefits you need.
At Bross & Frankel, PA, we support you throughout the course of your long-term disability claim process:
- Your disability benefits attorney can assess the details of the policy to determine your rights and responsibilities. This way, you will not only understand what benefits you are entitled to, but you can avoid inadvertently jeopardizing your claim.
- Long-term disability insurance claims must be supported by evidence of a disabling condition. In fact, the absence of necessary evidence is one of the leading causes of long-term disability denials. Your lawyer will collect necessary documentation like medical bills and records, doctor statements, and employment records and use it to present a compelling case.
- We handle communications with the insurer on your behalf. We will answer all questions and respond to requests for information in a thorough and accurate manner. Remember that everything you say to an insurance adjuster or company representative may negatively affect your claim; a lawyer handling all communications on your behalf reduces the chances of inadvertently harming your case.
- If your claim is denied, we can help you exercise your right to appeal the denial or seek reconsideration. We will use our years of experience as disability claim denial lawyers to challenge the insurer’s decision and get the best results in your case.
If you have questions about applying for LTD, the long and short-term disability benefits lawyers at Bross & Frankel, PA are ready to answer them. In fact, having an attorney by your side when filing for employer-paid LTD insurance or private disability benefits can be crucial for ensuring the success of your claim.
Are LTD Payments Taxed?
Yes, LTD disability payments can be treated as taxable income. The taxation arrangement for LTD benefits depends on whether you have an employer-sponsored plan or a private one.
- LTD benefits are taxed as ordinary income if you paid the monthly premium with before-tax dollars (as is almost always the case with employer-sponsored group plans).
- If you share the cost of the plan premiums with your employer, you are only taxed on the portion of the payments attributable to your employer’s contribution.
- You are not required to pay taxes on LTD benefits if you purchased the plan with your own after-tax dollars.
If you have questions regarding the tax implications of your benefits, consult an experienced New Jersey LTD benefits attorney.
How Much Does Long-Term Disability Pay if Offsets Exceed My Monthly LTD Benefit?
When the offset exceeds your LTD check, your LTD carrier will not pay anything unless your policy offers a minimum payment. You might be entitled to $100 per month, or 10% of your gross monthly benefit, even if the offset is greater than the LTD amount. The summary plan description should specify if your LTD policy has a minimum.
In some cases, insurance companies may miscalculate an offset or incorrectly place an offset on your benefits, so it’s important to know what your benefit and offset(s) should be. Otherwise, you risk losing out on a significant amount of money that you need during this difficult time. If you believe your benefits are being offset incorrectly and the insurer fails or refuses to correct the issue, you should contact a New Jersey long-term disability attorney.
How Much Does Long-Term Disability Pay if I Quit My Job?
If your disability is significantly impacting your ability to work, you may be tempted to resign before applying for long-term disability benefits. However, several group policies end disability coverage upon termination of employment relationships, which can leave you without access to benefits.
Private individual plans may handle this situation differently, but you should still contact a long-term disability lawyer about your options if you are thinking about quitting before going on disability. When you’re no longer receiving employment income, you don’t want to risk losing the benefits you need to survive financially.
Why Should I Hire a Long-Term Disability Lawyer?
Insurance companies can be tricky to deal with when it comes to getting money from them. Because they can’t make a profit if they’re always paying out, they often deny valid claims. An experienced disability lawyer can protect your rights by reviewing your policy to confirm what benefits you are entitled to, dealing with the insurer, and advocating for you at all stages of the claims process.
In the event that your LTD claim is denied or terminated, we strongly recommend that you hire or consult with a disability insurance lawyer. A person who files an appeal on their own can easily make mistakes like missing deadlines or failing to submit all necessary evidence. If your appeal is denied, a long-term disability lawyer can help you file a lawsuit against the insurer in question, further increasing your chances of getting the payments you need.
Get a Free Consultation From a Disability Lawyer About Your LTD Payments
If you’re planning to file for LTD benefits, it’s always a good idea to consult an attorney. The long-term disability attorneys at Bross & Frankel, PA, understand the complex rules of long-term disability and know how to apply them to protect clients’ rights. When necessary, we help people fight insurance companies to obtain the benefits they deserve.
There are no attorney fees charged unless you receive your disability benefits, so you have nothing to lose by speaking with us today. To schedule a free consultation with an ERISA lawyer at our law firm, call 856-210-3345 or contact us online.