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“I was too old for a paper route, too young for Social Security and too tired for an affair.” – Erma Bombeck

I had an incredibly lovely conversation on the airplane on my way home, with a woman, similar in age to me, who had experienced a dramatic healthcare crisis with her husband. She too had been in the middle of a move, so we were having A LOT of “insider” laughter about the ridiculousness of what we had dealt with. Her husband had contracted Swine Flu and it almost killed him. He was in the hospital in a drug induced coma for a month. He can no longer work and she has become the bread winner. The more we talked and laughed the more intimate our conversation became. We starting talking about the financial hit an illness or disability takes on a family who is prepared for our loved ones to die, but never prepared for them to become seriously ill and unable to work.

She described to me their new situation… before I get into it, let me just say, I have heard this story before, so listen to it carefully and remember it. I am not an expert and I would welcome anyone’s comments about this with supporting links to help us all understand it better.

So, her husband had paid for Long Term Disability Insurance (LTD) his entire working life. He began receiving this income replacement program, which is what it is designed for. Ok, so far. Then he was approved for LTD by the Social Security Administration (SSA) and received a $14,000 check paying for his disability, retroactively, starting from the date of his disability.

But here is the problem. When you go on LTD through an employer or private insurance program it is intended to give you immediate income for the duration of your disability OR until you are approved for LTD from the SSA. This folks is why it is so cheap, and this is why you should always buy it! No matter how young you are. You could fall off a ladder cleaning your gutters, or be in a car accident, or hurt yourself sky diving and you would be covered if you were prevented from working. It is a GREAT DEAL!

Alright, next step to understand. The insurance company has lawyers and their job is to process your Long Term Disability application to the Social Security Administration, which ALWAYS, 100%, turns down your first request (that the lawyers have made on your behalf).  You have to be disabled for 6 months before you can even apply! And THAT is why you buy  the LTD insurance. Also in the event that SSA NEVER approves your claim, your LTD insurance will continue to cover you.

Once you get approved by SSA, they will pay your LTD RETROACTIVELY in a lump sum payment and then begin your monthly disability payment, at which time the insurance company has met its contractual agreement with you.




WHY? Let me try to explain and this is where I would really appreciate someone’s assistance to better address it. Your LTD insurance is set up to give you funds IMMEDIATELY. If, and when, SSA agrees that you are permanently disabled they pay you IN FULL from the date of your disability. The problem is, the insurance company has paid you from the date of your disability. The money you are now getting from SSA – the LUMP SUM AMOUNT, IS NOT YOURS!

It is to reimburse the insurance company for keeping your nose above water and filing your claim and battling SSA on your behalf, while making sure you had money to pay your bills. When they are successful and you get what the government program has promised you, you are to give the money back to the insurance company that supported you through this process!

So what have you been paying for all these years? You have been paying for the luxury of having financial support on DAY 1 of your disability. SSA will not give you one dime during the first 6 months and usually much longer before you see anything from them. Should SSA continue to deny your disability claim, the insurance company looses and pays you indefinitely or whatever the terms of your insurance are. When you are approved by SSA, and you receive a lump sum payment, the insurance company has done what it promised and managed the whole process for you, and trust me, it is a fair deal and you have not had to battle SSA, while having zero income and being ill or injured.

PLEASE PLEASE PLEASE understand this concept and if you get a honker of a check from SSA in your disability journey, sit on it until you hear from the insurance company.

What happens most likely is, the SSA cuts the check and sends it to you, once your approved. Nobody from the lawyers or the insurance company calls you to tell you to expect the check. The insurance company probably doesn’t get notified or know about it for weeks after you have already received the check. SSA doesn’t pay directly to the insurance company because YOU are the claimant, NOT THE LAWYERS OR THE INSURANCE COMPANY.  Once the LTD Insurance provider receives notice that you have been approved, they quickly call you, but its late compared to when you get the check.

It seems like a simple solution would be for the Social Security Administration to include in the letter to you, a general statement, “If you have been receiving long term disability payments from an insurance policy, do not cash this check until you contact your insurance company!” But alas, that would be sane and helpful!

Folks often will use the money to pay off a bunch of bills that have accrued during the illness. Which was the case with my flying companion. They were being responsible, generally speaking.

THEN, you learn, the money was not yours to spend when you get a call from your LTD insurance provider, and now YOU owe the insurance company thousands of dollars and you are on a dramatically reduced income regardless, and now have this huge bill you weren’t expecting that has to be paid back – and you will have to pay it back. Its ugly.

Comments are very encouraged on this post!

9 Responses to “Danger, Danger, Will Robinson! – Disability Insurance 101”

  1. Lori Puente Lori says:

    One friend called me today. Her husband’s disability worked a little differently. The insurance company and the SSA worked together and they never got a lump sum payment. He gets payment from both. SSA pays the maximum and the LTD pays the difference because he was in a high salary bracket the LTD guaranteed a percentage of his income which is more than the maximum that SSA allows. But until SSA kicked in, they were covering him.

    With that in mind it would appear there may be different types of LTD insurance plans, like many other types of insurance. You can pay more to get more.

    So the upshot is, read your policy, talk to your insurance company, talk to your company’s benefits coordinators. If you get a big lump sum check while you have also been receiving insurance payments. I would double, triple, quadruple check before I spent it.

  2. Disability income insurance that is provided by an employer is almost always integrated with Social Security, and generally speaking, one cannot double dip. Moreover, insurance paid for by an employer is almost always deducted from business income taxes, making the benefits taxable to the beneficiary. The question one has to ask is “Can I handle a 30-50% cut in pay?” If you can’t handle that, then you should consider supplementing employer provided group disability insurance with a personal policy.

    Disability income insurance that is paid for with personal dollars will pay income tax-free benefits, and may, OR may NOT, be integrated with Social Security. Policies are NOT created equal, and you get what you pay for. This is where a professional insurance agent can make a difference – they can and should help you purchase the policy that best fits your needs, and explain the differences between various policy provisions.

    Most personal policies offer two types of disability benefits:

    1. Base benefit, NOT integrated with Social Security. This benefit is paid when the definition of disability is met, after an elimination period. This benefit will be paid until the end of the policy benefit period, or until the insured is no longer disabled, REGARDLESS of what Uncle Sugar pays.
    2. Social Insurance Substitute, a benefit paid when Social Security does not pay, often with a dollar for dollar offset when Social Security does pay.

    Base benefits have higher premiums. Benefits integrated and/or coordinated with Social Security will have lower premiums. A policy can be purchased with all base benefit, or maximum integration, or somewhere in between.

    In addition to the decision one needs to make regarding the choice to integrate or not integrate a personal policy with Social Security, a more important variable is the “definition of disability” — and there are substantial differences between policies here.

    The most liberal definition of disability is often referred to as “own occ” or “Own Occupation.” A more restrictive definition is “Regular occupation for two years, any occupation thereafter.” This means your “regular” occupation is covered for two years. After that, disability means the inability to perform ANY other occupation, such as sweeping the floor, or answering the phone.

    The strictest definition is a pure “any” occupation definition, which means the insured cannot perform ANY work for a wage. This is similar to the definition of disability under Social Security.

    As you might guess, the more liberal the definition, the higher the premium. Likewise, a more strict definition will have a lower premium.

    When you get disabled, and then find out you don’t qualify for benefits because you selected the lower premium, then you’ll want to kick yourself.

    Self-kicking when you need the money the most can be avoided by doing business with an experienced and knowledgeable insurance agent that specializes in disability income insurance, and choosing the right kind of coverage.

    Everyone asks me how much DI costs, and for most occupations, it is costs less than 3% of gross income in order to provide full coverage that will replace almost all of after-tax income during a disability.

    This link takes you to an older page on one of my sites that shows a simple comparison between Job A and Job B:


  3. Bobbye Anderson says:

    After my husband was diagnosed with multiple myeloma, he used all paid time off available; then he started on short term disability. After the std ran out, he started on long term disability. At the beginning, we thought he might be able to go back to work & did not have plans to file for social security disability. We were quickly informed by the ltd carrier that he must file for social security disability; so I got online and started the paper work. That was in May 2010. When we were in Little Rock in July, we received a phone call from Social Security sayng that my husband was approved for SSD. They said that it would probably be several weeks before he would receive the first check. Within 2 weeks, the money was direct deposited into our checking account and the money was retroed back not to the date that I first started the process on line; but back to the date that my husband changed from std to ltd. It didnt’ take very long for the insurance carrier to contact us and let us know that they wanted their money. I sent it back. My husband has a daughter, who was 17 at the time, who lives in another state. Social Security contacted us to let us know that they would be sending benefit checks to her mother for her until she graduated this year. I forgot to mention that the ltd carrier was and is still having to send us a check for $399 each month for the difference between the SSD check and what my husband is entitled to through the ltd insurance. As soon as the ltd ins company found out that Social Security was sending a check to my husband’s daughter, the insurance company started harrassing us to send them information to prove that she didn’t live with us. I say harrass because they were calling us on a weekly basis trying to get copies of the letter sent to my step daughter’s mother by SS and a copy of my step daughter’s driver’s license to prove that she didn’t live with us (1300 miles away). Otherwise, they’d want the $399 per month back. I told them that they were more like a collection agent rather than an insurance company. I know that there may be some who may have tried to take advantage of insurance companies; but if they did some research, they’d know that anyone who has multiple myeloma is not doing that.

  4. Lori Puente Lori says:

    Thanks for recounting your story Bobbye! I know it will be helpful to others. Sorry that they are harassing you guys about your step daughter. Those of us who are honest get pummeled with regulations, laws, policies put in place specifically because of those who do act in a criminal way. It’s so frustrating. I hope it gets sorted out quickly for you guys and that your hubby has a good outcome from Little Rock!

  5. Lori Puente Lori says:

    From Rene B:

    Lori, thanks again for the heads up about the SS disability check. We got the letter from the long term insurance carrier telling us how much we owed back. I’m so thankful that I was prepared for that letter. We were able to go to Miami. Other than an ER visit because of complications with Jeff’s pneumonia, we had a great time! Thanks again for your encouragement.

  6. Nancy Egger says:

    6 months into our journey with MM. My husband is wondering if MM patients are granted SS disability status pretty readily – or after a fight? He is considering hiring Binder and Binder from the commercials. I however, thought it better to wait and see. Since so many of your readers have already passed this milestone, I wonder if we could get some feedback on this question.

  7. Lori Puente Lori Puente says:

    The general rule of thumb is that SSA will deny at first application and then will accept in the appeal process. Disability insurance was originally designed to tide you over during this process and provide the lawyers to do the fight for it. Eventually he will get approved and it will be retroactive so apply quickly to begin that clock. Good luck. And if anyone else has something to add please do.

  8. GEM says:

    My husband has MM and was approved for SSD the first time he applied and it took about 2 weeks…

  9. GEM says:

    He applied online..no problems. Through SS you are considered disabled for one year if you have had a stem cell transplant, which my husband had..

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