Social Security can be beneficial to you as a disability claimant, but there are complications added benefits can have on existing benefits that you need to know.
Private long-term disability policies usually include a clause called an Offsetting Provision. This clause usually states that if you are currently receiving benefits (such as Social Security disability benefits), and you are awarded additional benefits, then your existing benefits will be reduced to your newly awarded benefits. Nearly all long-term disability policies require you to apply for Social Security Disability to create this offset.
In other words, “Other income gained offsets income paid through your disability insurer.”
Your total income will remain the same. However it will come from two or more sources. While this can be complicated, it is overall beneficial to you. Why? Say the insurance company decides to deny your claim. With diversified income sources, you would only lose the part of your income the denying insurer supplied.
This means that while you fight for those lost benefits in court, you still have an income to live off of. So on the surface, an Offsetting Provision may seem like the insurance company behaving selfishly, but it can help you in the long run.
What About "Retroactive Rewards"?
Beware careful with retroactive awards! Something to look out for is a lump sum check paid out for a past period as back benefits. Claimants are deservedly excited about this check. (We often get this for long-term disability claimants who work with BenGlassLaw to recover denied benefits.)
However, do not spend this money.
When the insurance company realizes you have been paid for back benefits by another source, they will realize they have overpaid you under the Offsetting Provision clause of your contract. They will bill you for their overpayment. The lump sum Social Security check will cover the bill for overpayment. It is imperative that you do not spend your lump sum back benefits check.
What happens if the disability insurance company offers to file for your retirement benefits, then misses the deadline?