Does LTD Carrier Have a Claim on Auxillary Benefits Paid to Your Kids
Posted Jul 18 2009 10:33pm
I regularly receive questions from unhappy Social Security claimants who are facing the prospect of having to send their lump sum Social Security disability checks to their LTD carriers. Many LTD policies, especially group policies, include provisions that offset LTD payments by any amount received by Social Security. In other words, if the LTD benefit is $1,800 per month and Social Security awards $1,500 per month, the LTD carrier's obligation becomes only $300 per month once SSDI is awarded.
Since the lump sum payment arises from months in which the claimant was also receiving long term disability, the LTD carrier contractually requires the claimant to turn over his Social Security lump sum payment to the LTD insurance company.
Not surprisingly, folks subject to this type of arrangement are not very happy about it. Why should the LTD carrier swoop in an grab that $25,000 or $30,000 check?
As I noted in a 2007 blog post about LTD offsets to Social Security claims, the LTD carriers justify this money grab by contending that the price of the group LTD policy reflects an expectation of a Social Security offset. In other words, the cost of group LTD insurance would, in theory, be higher if there was no offset.
Whether you believe this or not, I think it is safe to say that group LTD policy handbooks do not feature this offset obligation. Often the first time that SSDI claimants learn that their struggle and stress of pursuing Social Security result in zero dollars is after their SSDI hearings.
Now, apparently, there is a new twist. A gentleman named Shawn has written me to say that his LTD carrier not only wants his lump sum but they want the lump sum awarded to his kids as auxillaries. As Shawn points out, his kids (who live with their mother) received nothing in the way of benefits from the LTD carrier - how can the insurance company now claim the lump sums awarded to his kids?
Shawn raises a very good point. I would first look at the policy handbook, and at the policy itself to see if the auxillary benefits are included in the offset calculation.
If they are I wonder if such a provision might be ripe for a court challenge. Is there an enterprising class action lawyer out there who sees an opportunity?