What You Need to Know Before You Read:
- Overpayments in long-term disability (LTD) claims often occur when you receive additional income like Social Security Disability Insurance (SSDI) or workers' compensation.
- Disability insurance companies aggressively seek to recover these overpayments through repayment demands or by withholding future benefits.
- A lump-sum settlement can be a strategic option to resolve both the overpayment and your ongoing claim.
- Dabdoub Law Firm focuses exclusively on disability and life insurance claims — and has successfully negotiated lump-sum settlements and resolved overpayment issues for clients nationwide.
When Does a Disability Insurance Overpayment Occur?
Overpayments typically arise when a claimant approved for, and being paid, long-term disability benefits also begins receiving other income that offsets LTD benefits. This other income may include:
- Social Security Disability Insurance (SSDI)
- Workers’ compensation
- Retirement or pension benefits
- Other income specified in the policy
Most disability insurance policies include provisions that allow insurers to reduce your monthly LTD payments based on these other income sources. When the insurer finds out you’ve received this additional income, it will retroactively adjust your LTD benefits — resulting in what they call an “overpayment.”
How Do Insurers Recover Overpayments?
Disability insurance companies use several tactics to recoup overpayments, such as:
- Demanding Immediate Repayment: A lump-sum repayment of the overpaid amount, often within 30 days.
- Reducing Future Monthly Benefits: Lowering or deducting your monthly LTD benefit until the overpayment is recovered.
- Suspending Benefit Payments: Completely withholding your monthly LTD payments until the overpayment is repaid in full.
These recovery tactics can leave you financially vulnerable, especially if your only income is LTD benefits.
Lump-Sum Buyouts: A Possible Solution to an Overpayment
A lump-sum buyout (or lump-sum settlement) offers an alternative to ongoing monthly payments and may provide a strategic resolution to your overpayment issue. In a lump-sum buyout, the insurance company offers a one-time payment in exchange for closing your claim permanently. This includes releasing both you and the insurer from any future obligations under the policy, including the repayment of any overpaid benefits.
Key Advantages:
- Immediate Cash: Useful if you need a large sum now to manage expenses or debt.
- No More Repayment Worries: Overpayment is typically waived as part of the settlement.
- End of Ongoing Surveillance or Claim Reviews: Your relationship with the insurance company ends and you no longer have to answer to them or deal with them watching over you.
However, this option is not without risks.
What to Consider Before Accepting a Lump-Sum Settlement
Insurance companies are businesses first. Their goal is to settle your claim for less than they would pay out over time. Accepting a lump-sum requires careful consideration.
Before agreeing to a lump-sum settlement, ask yourself:
- Will this settlement sustain me long-term? Estimate the value of your benefits through retirement age and compare it to the lump-sum offer.
- Are there tax implications? Lump-sum payments may have tax consequences depending on how your premiums were paid. Always consult a tax advisor before signing a release.
- How is my health expected to change? If your medical condition is unlikely to improve, accepting a settlement may mean walking away from years of entitled benefits.
- What else might I lose? Ending your LTD claim may affect other employer-sponsored benefits tied to your disability claim, such as health insurance or retirement contributions. Always confirm this before accepting a lump-sum settlement.
Legal Assistance from the Experts
Given the complexities, and future impact, an overpayment and lump-sum settlement can have on your long-term disability claim, it is important to consult with an experienced long term disability insurance attorney. An attorney can help you:
- Interpret Long-Term Disability Policy Provisions: Clarify your obligations regarding overpayments and the feasibility of a lump-sum settlement.
- Negotiate with Insurers: Advocate on your behalf for a fair settlement and ensure that any overpayment is taken into consideration and relieved through the settlement.
- Protect Your Rights: Ensure that your rights are protected throughout the buy-out, preventing potential pitfalls.
Our Lawyers Specialize in Disability Insurance Claims
Because our law firm has always focused only on disability insurance, our lawyers are experts in legal representation for disability insurance benefits.
That means our disability lawyers have:
- Won several major disability lawsuits that help make better law for disability claimants;
- Experience fighting every major insurance company, such as UNUM, Hartford, MetLife, CIGNA, Prudential, and more.
- Successfully represented hundreds of clients and won millions of dollars in disability benefits.
Because federal law applies to most disability insurance claims, we can help clients across the country.
Disability insurance companies have lawyers. You should too. Call Dabdoub Law Firm to get experienced disability lawyers on your side.
We can help with:
- Submitting a disability insurance claim;
- Appealing a long-term disability denial;
- negotiating a lump-sum settlement; or
- Filing a lawsuit against your disability insurance company.
Call for a free consultation with a disability attorney. No fees or costs until you get paid.