Many times, people misunderstand the relationship that may exist between Social Security disability and private long-term disability benefits. The misunderstanding has resulted in many disabled people failing to make a knowledgeable decision.
Some medically impaired people who have the benefit of an LTD policy and have succeeded in obtaining coverage under that policy decide not to file for SSD. This can be a serious mistake for multiple reasons.
LTD policy may require an SSD application to pay out
Many LTD policies require that the beneficiary file for SSD to continue receiving the LTD benefits. As explained by United Policyholders, a nonprofit consumer information resource, it is prevalent today for a carrier to include a term in the policy that requires the claimant under the policy to file for SSD. If the claimant does not file for SSD, the LTD policy will lose the obligation to pay on the claim.
Additionally, if the claimant wins his or her SSD claim, the LTD policy may then dictate that it pays its benefit after offsetting the payable amount with the SSD benefit amount each month. Obviously, this type of provision saves the insurance carrier much in payouts. As a result, purchasing such a policy is less expensive than a policy that does not include the offset.
One can expect an employment provided policy to likely have this offset provision. Despite this offset, it is important that a disabled person file for his or her SSD benefits.
Forgoing a valid SSD claim may mean a shrinking retirement benefit
Some people mistakenly refrain from applying for SSD even though they are unable to work because they feel satisfaction with their LTD benefit or workers’ compensation benefit, or one of many other reasons. However, if that person continues to be unable to work, there is a great chance that his or her Social Security retirement benefit in the future will shrink. This is because the top 35 years of working income serves as the base for the retirement calculation, including any zero years of income that make up the top 35 years.
By securing an SSD award, the benefits amount calculation will exclude any new years of zero income from the calculation of average lifetime monthly earnings. Those zero years will not reduce that average monthly amount.
Additionally, the SSA’s estimated benefit amount one may download from the SSA’s website qualifies the information. It presumes that one continues to work at the income level of the most recent year until that worker is of retirement age. If a person no longer works, the estimate is not accurate. It may not even be in the same ball park as the real amount as calculated several years later.