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Producer Connection is Standard Insurance Company's quarterly online newsletter for Employee Benefits producers.
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what you think of Producer Connection and how we can make it better.
Employees covered by a group Long Term Disability (LTD) plan who become disabled are often eligible for other benefits in addition to their monthly LTD benefit. Let’s take a look at the two biggest potential sources of other income.
Social Security Disability Insurance (SSDI) benefits are the most common source of other income. However, the Social Security definition of disability is stricter than most group LTD policies, and there is a lag time before benefits are approved. Only the most severely disabled people obtain SSDI benefits — according to the Social Security Administration, approximately 65% of applicants from 1965 to 2006 were denied SSDI benefits. Group LTD benefits can help bridge the gap during the Social Security application and approval process, but it is important that disabled employees who will likely be out of work for six months or longer apply for SSDI benefits as soon as they can.
Although most group LTD policies deduct Social Security income, SSDI benefits are still valuable. While some group LTD benefits are taxable, SSDI benefits are not. Social Security provides a cost of living adjustment (COLA) each year, while most group LTD policies do not (although COLA is an added-cost option offered by most carriers). SSDI benefits transfer to a surviving spouse upon the death of the disabled employee. Group LTD benefits do not. Medicare benefits are also available to Social Security recipients after a waiting period; this is very important for disabled employees who have lost their group health insurance.
Work earnings are another common source of additional income available to employees receiving LTD benefits. Often work earnings are deducted using a formula which provides an incentive for the employee to return to work. For example, instead of deducting the entire amount of the employee’s part-time work earnings, for the first 12 months the LTD plan might deduct only the amount of work earnings which, when combined with the LTD benefit, exceeds 100% of the employee’s indexed predisability income. After 12 months, only 50% of work earnings are deducted from the LTD benefit. This allows disabled employees to return to work as their medical condition allows, while keeping their income at about the same level as before becoming disabled. See the illustration below, for an example of a work earnings calculation under this type of plan.
Other types of additional income include PERS benefits (a retirement and disability plan for public groups not eligible for Social Security), Workers' Compensation benefits and Statutory Disability benefits in some states. Most group LTD plans deduct these sources of other income, but most plans also pay a minimum benefit if the amount of the offset exceeds the LTD benefit amount. So, a disabled employee is still better off than they would be without LTD coverage.
(Click image to enlarge)