Almost every group long term disability insurance policy contains wording allowing the insurance company to reduce the monthly benefit it pays by any other income the disabled person receives.
The most common other income is social security disability. The practical effect can be seen in the following example:
Annual Income: $60,000
Monthly Income: $5,000
Monthly LTD insurance benefit (60%): $3,000
SSD benefit: $1,800
Net LTD benefit after other income deduction: $1,200
The practical effect of the other income offset is to cap the disabled persons monthly income at 60% of their pre-disability earnings. With the LTD carrier only paying the difference.
This situation is further complicated by the delay in the social security application process. Many times the SSD approval can takes many months or even years, during which the LTD insurer commonly pays the unreduced monthly benefit. ($3,000 in the example above). Then SSD retroactively approves the claim for benefits and deposits a large sum of past due benefits into the claimant’s account. The LTD carrier immediately seeks repayment of this lump sum payment as the policy contemplates.
I have seen many times that once the LTD claimant satisfies the overpayment by turning over the lump sum received from SSD the LTD carrier then finds a reason to deny the claim for benefits.