Private, individual disability insurance can provide a substantial amount of value to those who are looking to mitigate the potential financial risk of a catastrophic injury, illness, or condition, but in some situations — particularly those involving an older policyholder — the premiums are simply too high.
Social Security Offset riders are an excellent tool for defraying the cost of a private disability insurance policy and are included in many such policies. Still, despite how common Social Security Offset riders are in the private disability insurance context, many people are unaware of exactly how they work.
If you are signed onto a private disability insurance policy, then your policy may include a Social Security Offset rider that is simultaneously protective and demanding. Confused about how a Social Security Offset rider affects your eligibility for benefits, and what it requires of you? It’s worth consulting with an experienced Tampa disability insurance lawyer who can provide further guidance.
Social Security Offset riders are rather straightforward, actually, so let’s jump right in with a consideration of the fundamentals.
Social Security Offset Riders — What is Their Purpose?
A Social Security Offset rider lowers the cost of a private disability insurance policy. In accordance with the terms of the rider, a policyholder is required to apply for Social Security Disability Insurance (SSDI) benefits in the event that they become disabled. Assuming that the SSDI benefits are granted, they will be subtracted from the total benefits that would have been paid out by your private insurer.
Suppose that you are a private disability insurance policyholder, and your policy includes a Social Security Offset rider. Later, you are injured in a motor vehicle accident and become disabled. Your private insurance policy benefits pay out up to $4,000, which you are entitled to receive. First, however, you must apply for SSDI benefits. If the Social Security Administration grants you SSDI benefits (say, for example, $1,000), then you will receive a total $4,000 in benefits ($1,000 from SSDI benefits, and $3,000 from private insurance benefits). At a glance, the rider does not therefore have an effect on your total benefits. You will receive $4,000 no matter what.
Because a Social Security Offset rider could reduce the amount that your private disability insurer has to pay out in benefits, they may offer to include a rider and reduce the premiums on your policy. As Social Security Offset riders are a simple and easy way to reduce one’s premiums, they are quite common — even if you’re on a group plan, there’s a good chance that your policy includes a Social Security Offset rider.
What Happens if You Cannot Obtain Social Security Disability Coverage?
It’s worth noting that the Social Security Administration frequently denies claims for SSDI benefits. In fact, statistics reveal that slightly more than half of SSDI benefits applicants are not awarded benefits. This tendency — in addition to the broader definition of “disability” written into most private disability insurance plans — means that you may qualify for benefits under your private disability insurance policy but be denied SSDI benefits by the Social Security Administration.
In the event that your application for SSDI benefits is denied, your insurer will require that you appeal the decision of the Social Security Administration (and may even cover the costs of such appeal). If the appeal is lost, then your private disability insurer will pay the full amount initially agreed upon in the insurance plan.
The Critical Disadvantage of a Social Security Offset Rider
Social Security Offset riders may seem like a win-win, but there’s a critical disadvantage to consider — if you do not have a rider, then you may still apply for SSDI benefits, and if you are granted SSDI benefits, then they will not cut into your private disability benefits. Put simply, if you do not have a Social Security Offset rider, you could ostensibly receive both SSDI benefits and private disability benefits, and the two will be added on top of one another. In the above example ($4,000 in private disability benefits, and $1,000 in SSDI benefits), you would be entitled to receive $5,000 in total benefits, so long as you do not have a rider.