If you are receiving long-term disability benefits and your employer terminates your employment, you can be entitled to both severance and continued LTD benefits.
However, accepting a severance package can affect your disability payments. Some LTD policies allow the insurance company to reduce benefits when you receive certain payments from your employer.
That doesn’t mean you should give up your severance or choose between severance and LTD. It means both issues should be reviewed together before you sign a severance agreement.
On This Page:
- Can You Receive Severance and LTD?
- Can Severance Affect LTD?
- Do You Have to Choose?
- What Happens to LTD After Termination?
- Before Signing Severance
- If the Insurer Deducts Severance
Can You Receive Severance and Long-Term Disability at the Same Time?
Yes. Being entitled to a severance package doesn’t automatically mean you lose your long-term disability benefits.
Your employer and disability insurer have different obligations:
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Severance relates to the end of your employment.
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LTD benefits are paid under an insurance policy because a medical condition prevents you from working.
You can therefore have rights against both your employer and the insurance company at the same time.
The complication is that your LTD policy can contain rules allowing the insurer to deduct certain income or payments from your disability benefits.
Can a Severance Package Affect Your LTD Benefits?
Yes. It can, depending on the wording of your LTD policy and how your severance is paid.
Many LTD policies have rules dealing with other income. Depending on the policy, the insurer can argue that payments from your employer should reduce the LTD benefits it owes you.
This can include:
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Salary continuation
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Termination or severance payments
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Other employment-related payments
The insurer’s right to make a deduction isn’t automatic simply because you received money from your employer. The exact wording of the LTD policy and severance agreement matters.
Do You Have to Choose Between Severance and Long-Term Disability?
Usually, no. Severance and LTD are different entitlements.
For example, someone offered an 18-month severance package while receiving LTD shouldn’t simply ask whether the severance or disability benefits are “better.”
The more important questions are:
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How much severance are you actually owed?
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Does your LTD policy allow any of that severance to be deducted?
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How is the severance being paid?
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Does the severance agreement affect your LTD claim or other benefits?
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Are you releasing any claims you didn’t intend to give up?
The goal is generally to protect the severance you are owed and the disability benefits you continue to qualify for—not unnecessarily sacrifice one for the other.
Does It Matter How the Severance Package Is Paid?
Yes. Salary continuation and a lump-sum settlement can be treated differently depending on the LTD policy.
Salary Continuation
With salary continuation, your employer continues paying income for a period after termination.
An LTD insurer can argue that this income reduces the amount it must pay during the same period.
Lump-Sum Severance
A lump-sum severance payment can also create an LTD issue. The insurer can take the position that some or all of the payment represents income for a particular period after termination.
Other Amounts in a Settlement
A settlement can sometimes include amounts paid for different legal claims rather than simply lost wages.
How those amounts affect LTD depends on what they genuinely represent, the wording of the settlement and the LTD policy.
Don’t restructure or label a settlement simply to avoid an LTD deduction. Any allocation should accurately reflect the claims being resolved.
What Happens to Your LTD Benefits if You Are Terminated?
Losing your job doesn’t mean you are suddenly medically able to work.
If you were already receiving LTD when your employment ended, the insurance company can continue reviewing whether you meet the requirements of the policy.
Your insurer can still ask for:
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Updated medical information
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Information from your doctors
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Proof that you continue to be unable to work
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An independent medical examination or other assessment
Your employer’s decision to end your employment and the insurer’s decision about LTD benefits are separate issues.
For more information, read our guide on termination while receiving long-term disability benefits.
Are You Still Owed Severance if You Are on LTD?
Being on LTD doesn’t automatically take away your right to severance if your employer terminates you.
The amount you are owed depends on your employment situation and the laws that apply to you—it can be as much as 24 months’ pay.
If you receive a severance offer while on disability leave, don’t assume the amount is correct just because your employer has put it in writing.
There can also be additional issues if your disability, medical leave or need for accommodation played a role in the decision to terminate your employment.
What Should You Check Before Signing a Severance Package While on LTD?
Before accepting the offer:
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Find out how much severance you are actually owed. The employer’s first offer might not reflect your full entitlement. Use the Severance Pay Calculator to get a better idea.
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Review your LTD policy. Look at the rules for severance, salary continuation and other income.
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Check how the severance is being paid. The payment structure can affect how the LTD insurer treats it.
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Read the release carefully. Make sure you understand which claims and rights you are giving up.
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Have both issues reviewed together. A severance agreement that looks good from an employment perspective can create a problem for your LTD benefits.
What if the LTD Insurer Deducts Your Severance?
Don’t assume the insurer’s calculation is automatically correct.
Ask the insurer to explain:
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How much it is deducting
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How long the deduction will apply
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Which part of the LTD policy allows the deduction
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How it treated the different payments in your severance agreement
If the deduction doesn’t match the policy or the actual severance agreement, it can be challenged.
Keep a copy of your LTD policy, severance offer, signed agreement and all correspondence with the insurer.
Frequently Asked Questions About Severance and LTD
Can I Get Severance While Receiving Long-Term Disability?
Yes. If your employment is terminated while you are on LTD, you can still have a right to severance. Your LTD policy will determine whether any part of that payment affects your disability benefits.
Does Severance Stop Long-Term Disability Benefits?
Not automatically. However, your policy can allow the insurer to reduce LTD payments because of certain severance or employment income.
Do I Have to Choose Between Severance and LTD?
Usually not. They are different entitlements. The issue is whether your LTD policy allows the insurer to deduct some of your severance from the disability benefits it owes.
Can My Employer Fire Me While I Am on LTD?
Being on LTD doesn’t make termination impossible, but your employer can’t legally terminate you because of your disability. If you are fired while on disability leave, get advice before signing a severance package.
Can My LTD Insurer Take My Entire Severance Package?
It depends on the LTD policy and the severance agreement. Ask the insurer to identify the policy wording it relies on before accepting a large deduction.
Should I Sign a Severance Offer While on LTD?
No—have it reviewed first. You need to understand both whether the severance offer is fair and how accepting it could affect your LTD benefits.
Get Help With Severance and Long-Term Disability Benefits
A termination while you are on long-term disability can create two connected issues: what your employer owes you and what your disability insurer must continue paying.
Don’t deal with one without considering the other.
Samfiru Tumarkin LLP has employment and disability lawyers who understand how severance packages and LTD benefits can interact.
If you have been offered severance while receiving long-term disability benefits, or your LTD is denied, get advice before signing the agreement or walking away from compensation.