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Danger, Danger, Will Robinson! – Disability Insurance 101

Posted Nov 17 2010 11:50pm

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!

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