Legal advice and support

Other Income: Two Not-So-Simple Words

As is usually the case, most of our clients run into complications with their long-term disability (Employer-Sponsored) plans because they have not fully read nor fully understand the terms and conditions of their policies. One of the biggest stumbling blocks is the term Other Income.

Here is an example of how these two simple words can affect not only your benefits, but also your entire financial future.

One of our clients, we’ll call him, Dave, experienced an on-the-job injury that left him permanently disabled. Dave held a job as head of maintenance in a small apartment complex. He had a wife and two young children. Immediately after it was determined that Dave was permanently disabled, he applied for Social Security Disability in addition to putting in a claim with his Long-Term Disability carrier (his Employer-Sponsored plan). While his Social Security Disability benefits would take up to 18 months to receive, the plan he had through his employer began paying benefits much sooner; almost immediately after the conclusion of his Short-Term Disability. Dave’s benefits were 60% of his total monthly income, or $2,500.

Dave had estimated that his Social Security Disability check would amount to $1,500. He assumed that eventually he could add Social Security benefits to his monthly income, and that he and his family, although they’d be forced to tighten their belts, could meet most of their expenses with about $4,000 per month. After Dave had been getting his Social Security Disability benefits for about a year, he was contacted by his Long-Term carrier and informed that he now owed them an overpayment. The insurance carrier considered Social Security Benefits as other income. And, all other income reduced the amount of Long-Term Disability benefits Dave was entitled to receive through his Employer-Sponsored plan.
At that point, Dave was informed that he now owed the insurance carrier $12,000. Here’s how they arrived at that figure: Dave’s Social Security benefits amounted to $1,500. His Long-Term Disability benefits amounted to $2,500. The insurance carrier subtracted $1,500 from $2,500, and concluded that Dave owed them the difference of $1,000 per month over a period of 12 months.

Even with his wife working, there was no way that Dave could pay that debt. The family was barely making ends meet. Unfortunately, this is usually the point where disabled clients seek the advice of an attorney.

In our practice, we see Dave’s kind of problem on a regular basis. In fact, Dave’s is not the worst case scenario. In Dave’s case, he owed the insurance carrier overpayment based only on the Social Security Benefits he received. However, in some cases, Long-Term Disability plans consider other income to mean Workers’ Compensation, 401k’s, and any other money coming into the home. That can mean the carrier may demand payback from those sources as well, no matter how meager.

Best Advice . . .(1. Make sure you read and understand your Long-Term Disability (Employer-Sponsored) Plan. Every term has a specific meaning and a specific effect on your monthly benefits.(2. Although Long-Term Disability (Employer-Sponsored) Plans differ, most have stringent restrictions. For added security, you might consider investing in a private, Individual Long-Term Disability Plan.(3. Consult an attorney when you first become disabled to avoid misconceptions about the benefits you will receive.