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When you buy disability insurance, it is natural to think you are covered for the face amount of the coverage.  For example, when you buy coverage through your work and it says you get paid 60% of your pre-disability earnings if you become disabled, it is fair to assume you get 60%, right?  Nope.

The fine print says the disability insurance company can cut your benefits if you get “Other Income.”

Other income means money you earn from working another job, right?  Nope again.  Other Income is actually a special phrase that describes income that you may received from a variety of sources.  The most common of these are:

  • Social Security Disability (including what your children get if you get SSDI)
  • Disability Pension
  • Retirement Pension from the same employer
  • Benefits you may receive from another disability insurance policy

Nearly all ERISA Disability Plans and many Individual Disability Insurance Policies include language that permits the administrator or insurance company to reduce your Disability benefits by the amount you get from “other income” sources.

How do you know if you ERISA plan or Disability Insurance Policy includes an offset for Other Income? 

Read it.  If your benefits are through your employer’s plan, read this article:  Get the Plan.  If you have an Individual Disability Insurance policy, write your agent and ask for a full copy of the policy.  Once you get the plan or policy, read it and look for provisions which either talk about “Other Income” or “Reductions.”  Often, they will be buried deep in the back of your plan document or policy.  If you are not sure, ask your human resources office or your insurance agent to find out for you.

What are these reductions for other income called?

When a disability insurance company subtracts your other income benefits, it is called “offsetting” or an “offset.”  The other income amount is offset (or taken away from) your Disability Insurance benefit.

What happens if the offset for other income is as much (or more) than my disability insurance benefit?

It is very common for a person to get as much (or almost as much) Social Security Disability as Disability Insurance benefits.  Most ERISA Disability Plans and private Disability Insurance policies have a minimum monthly benefit – often $100 or possibly 10% of the gross benefit.  If the offset are as much as or more than the Disability benefit, the insured will get the minimum monthly payment.

Here is an example:  Assume that a person is supposed to get 60% of their pre-disability earnings under the disability plan.  If the person made $2,000 per month that they are expecting from the disability insurance company.  Assume they get $1,700 per month from Social Security Disabiltiy (SSDI) plus $400 from a Disability Pension, for a total of $2,100.  When that is subtracted from their $2,000 gross disability insurance benefit, that leaves a negative number.  If they are  lucky enough to have a minimum benefit under the disability plan – say $100 – that is what is paid.  Some plans have no minimum, and if that is the case, the insured gets nothing.

But these offsets make disability insurance worthless!  What am I paying for?

Good question.  In the case of ERISA Disability coverage you get through work, you are paying very little premium for group disability.  Put simply, you get what you (and your employer) pay for.  Read your employer’s plan and consider supplementing it with private Disability Insurance.  If you already have an Individual Disability Insurance policy and you find out that it has other income offset provisions, see if you can buy another policy that does not have those terms for an affordable price.  Unfortunately, if you already have a condition that could become disabling, switching your private coverage or buying new coverage could be expensive or impossible.

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If you have questions about your Disability Insurance or you have had a Disability claim denied, call Disability Attorney John Tucker at (866-282-5260). 

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