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​​Do you have to pay back a disability payout?

Disability insurance payments are usually yours to keep, but you may have to pay disability benefits if you qualify for Social Security benefits, you go past work and income limits, or after you receive too much because of an error.

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By

Andrew HurstSenior Editor & Licensed Auto Insurance ExpertAndrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

Edited by

Anna SwartzAnna SwartzSenior Managing EditorAnna Swartz is a senior managing editor who specializes in home, auto, renters, and disability insurance at Policygenius. Previously, she was a senior staff writer at Mic and a writer at The Dodo. Her work has also appeared in Salon, HuffPost, MSN, AOL, and Heeb.

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If you’re injured or sick and can’t work, disability insurance will pay out until you can go back to work or until the policy’s benefits term is up. 

Most of the time, these payments work just like your regular paycheck and you can use them on whatever you need while you’re out of work (and don’t have to pay them back) , but in certain, rare situations you may have to pay back your insurance company for some of the money you receive as benefits payments.

Key takeaways

  • You typically don't have to pay back any disability insurance payouts, but there are sometimes exceptions.

  • You may have to repay part of your disability benefits if you receive benefits from Social Security, if you return to work, or after an error.

  • Your insurance company may accept a lump sum or reduced benefits as repayment.

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When do you have to pay back long-term disability insurance benefits?

Generally, you won’t have to pay back any disability insurance payments. But there are some rare exceptions — most long-term disability insurance policies contain a rule called an offset provision that explains the specific situations when you might have to repay part of your disability benefits.

Your insurance company will let you know if you have to pay back any of your long-term disability benefits, but you should also read your policy documents closely so you know what to expect.

Insurance companies don’t all have the same offset provisions. That said, there are a few common cases that trigger the provision:

  • You receive benefits from Social Security

  • You return to work while still receiving benefits

  • Your insurance company makes an error and overpays you

If you get benefits through Social Security

Disability insurance companies may require you to pay back some of what you were paid in benefits if you also qualify for individual or dependent disability benefits from Social Security (also called Social Security Disability Insurance or SSDI).

Applying for SSDI takes a long time so you may have to wait months before you start receiving any of those benefits. You’ll still receive payments from your long-term policy, but once your SSDI payments start, you may need to repay an equivalent amount of the long-term benefits.

Going forward, your long-term disability insurance will pay you less to account for what you’re getting from SSDI.

You may also have to pay back the Social Security Administration for an overpayment — when you receive more benefits than what you actually qualify for because of an administrative error, or if you started working and kept collecting your benefits.

The SSDI provision in action

Let’s say you start receiving benefits from a private long-term policy worth $5,000 a month. Your policy’s supplemental or social insurance rider (SIS) requires you to apply for SSDI benefits, but you wait 6 months before you start to receive benefits.

Then you’re approved for $1,000 a month in SSDI benefits, plus back pay for the 6 months you waited for your application to process. Since you still received payments from your long-term disability policy during that time, you may have to pay back that $6,000, and your future benefit payments will be $1,000 less per month.

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If you work or earn too much while receiving benefits

If you’re able to return to work, make sure you know whether your policy limits how much you can work or earn while still receiving benefits. Violating any rules about employment or income means you may have to pay back the benefits you earned while you were working.

With some disability insurance policies, you may not be able to receive benefits if you can return to work in any capacity, while some policies allow you to qualify for partial benefits based on how much your disability affects your income.

If your insurance company makes an administrative error

It’s rare but possible that your insurance company can make a mistake and send you more money than what you’re entitled to. Insurance companies don’t typically waive these errors — you’ll still have to pay back any extra money you receive.

How do you repay any benefits you owe?

There are a few ways to repay any disability insurance benefits you owe. Your insurance company may also reduce your future benefits until what you owe is fully paid back.

Alternatively, you may be able to make a one-time lump-sum payment. This might be a better option if you have enough money on hand and you want to avoid having your disability benefits reduced.

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Frequently asked questions

What happens if you don’t repay your disability benefits?

If you refuse to repay the benefits your policy’s offset provision makes you required to pay back, your future benefits will be reduced to offset what you owe.

How is back pay for disability insurance calculated?

Back pay depends on how long you wait to start receiving benefits. If you qualify for SSDI but it took six months to get approved, you may receive back pay for the six-month period you spent waiting.

Can Social Security garnish your wages?

If you owe some of your benefits to Social Security, the SSA can garnish your wages as a last resort if you refuse to make a payment. It may be worth appealing the decision or talking with a lawyer if you can’t afford to pay back benefits you received.

Author

Andrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

Editor

Anna Swartz is a senior managing editor who specializes in home, auto, renters, and disability insurance at Policygenius. Previously, she was a senior staff writer at Mic and a writer at The Dodo. Her work has also appeared in Salon, HuffPost, MSN, AOL, and Heeb.

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