Let’s say you become ill and can’t work anymore. Fortunately, you have disability insurance coverage through your employer. You apply and get awarded benefits. The policy says your benefits are two thirds of your salary. But the insurance company is paying you less. They say that they can subtract from your benefits any money you are collecting from Social Security Disability.
Can they do that? Like many insurance questions, it depends on the insurance policy fine print.
Most disability insurance policies provide an offset for so-called “other income” or “deducible income” you receive because of your disability. For instance, if your monthly disability insurance benefit would normally be $1,000, and you have $300 in deductible income, the disability insurance benefit is reduced to $700. What counts as deductible income that counts against your benefits depends on the wording of the insurance policy.
Deductible income often includes:
- Social security disability payments;
- Workers’ compensation payments;
- Payments from other insurance policies; or
- Payments from the person who inflicted the injuries that made you disabled (if a third party is responsible for your disability).
Moreover, disability insurance policies often require you to apply for potential sources of deductible income. For instance, your disability policy may require you to apply for Social Security Disability benefits.
The key is that the insurance company can’t deduct income that isn’t specifically listed in the policy. If you are receiving benefits under a disability insurance policy and the insurer tries to reduce your benefit because you are receiving other disability income, consult a lawyer to review the policy and make sure you know your rights.
Seattle Insurance and ERISA Blog 