What Kind of Long-Term Disability Policy do You Have?
Long-term disability insurance (LTDI) helps replace income if you become disabled from working for months or years due to an accident, illness or other disability. LTDI policies may be purchased privately on the open market or offered by a professional association, or they may be provided by the employer as a group policy, often as a fringe benefit paid by entirely the employer or with some contribution from the employee. The type of policy you own can be very important regarding the cost of the insurance and its most important terms, and there may be big differences regarding how claims, and claim denials, are handled.
Group Policies
An LTDI policy purchased through your employer may be offered as part of your compensation package at little or no cost to you, and for that reason alone may seem like a pretty good deal. One of the most important things to know about employer-provided group policies is that they are most likely covered by the Employee Retirement Income Security Act (ERISA). ERISA is a federal law regulating retirement benefit plans, and it has also been construed as covering LTDI policies as well. ERISA rules in fact impact LTDI plans in a number of ways that don’t necessarily work to the employee’s benefit. First of all, there are strict time limits to apply for benefits and strict time limits for filing a lawsuit. This clock starts ticking away very early; you may still be in the process of applying for benefits and not even be thinking of the need to file a lawsuit, yet your window of opportunity to do so is already closing.
Also, there are strict rules regarding an appeal after a claim denial. These rules impact what can or must be included in your claim documents and what type of evidence can ultimately be considered by a court. Even before you get to court, ERISA rules require you to first exhaust administrative remedies. This is a critical stage, as the record made in this process may be all the judge sees if you eventually get into federal court. In other words, if you’re not careful, you could go into court with the record already stacked against you.
Individual Private Policies
If you’re a business owner, a professional, executive or other individual with a high income to protect, purchasing a long-term disability insurance policy probably makes good financial sense. You may even have a policy through your employer but know that it’s not enough on its own to fully protect your income. Regardless, your rights under an individual policy can be different (and better) than your rights under a group policy. Also, benefits paid under an individual policy are typically tax-free.
Individual policies may have better terms and higher benefits than group plans, but this also means the insurance company – already notorious for denying claims – will scrutinize your claim even harder given their larger liability exposure to you. As an individual policyholder, the carrier has nothing to lose from delaying your claim as long as it can or issuing a denial, even if it eventually has to pay the claim. All the while, you’re out of work and out of pocket paying for the very expenses you purchased LTDI to cover.
LTDI policies are lengthy, complex and highly technical. While the insurance company has entire departments devoted to drafting and interpreting these policies, it is doubtful you could have any level of understanding approaching theirs. Hiring an experienced LTDI attorney to guide you through the claims and appeals process may be essential. Fortunately, any lawsuit brought against your individual policy can be brought in state court, as opposed to federal court which is required for ERISA-covered employer group plans. You will find you have more rights and an opportunity for a speedier resolution in state court, and that you are not limited to the strict procedures imposed on group plan policyholders.
Professional Association Policies
If you are a doctor, lawyer or other professional, you may also be able to purchase LTDI through a professional association to which you belong. It can be easier to obtain coverage through one of these plans than as an individual, as you typically will not be required to undergo as thorough a medical history or physical examination. However, the policy offered by the group may not be the best one for your needs, and it may not be the most affordable policy, so it makes sense to shop around for a private policy and compare it to what the group offers before signing up. This includes not only pricing but also important terms such as their definition of disability and payout limitations. Also, you aren’t guaranteed that the association will continue to offer the same plan with the same provider or offer a plan at all, and if you leave the association you’ll lose your coverage, just like leaving an employer where you had group coverage. Finally, it may be more advantageous tax-wise to purchase a policy on your own versus through a professional association, a factor which could sway your decision if the premium and other factors are comparable.
So which is better?
You might be thinking that accepting LTDI coverage from your employer as a fringe benefit makes more sense than buying it on your own. After all, you don’t have to pay for group coverage, or you will only be required to contribute a portion toward the premium, probably with a tax benefit, versus having to come up with the additional expense out of your household budget. There are still a few issues to consider, however, which might actually sway you toward purchasing an individual plan on your own.
First of all, if you are relatively young and your income is not yet especially high, you may find that an LTDI plan is considerably cheaper and much more affordable than you would have expected. If you purchase LTDI coverage through your employer, assuming your employer even offers the option, it may come at the expense of some other fringe benefit you could be getting instead. Also, if you eventually leave your employer after a number of years, you may find yourself at a new job that does not offer LTDI. Now you’re older and making more money, so buying an individual policy at this time is costly, to say the least. It may be possible to convert your group plan to a private policy, but you will likely find the cost to do so prohibitive.
Long-term disability insurance can be a lifesaver if you are out of work for a significant period due to disability. Just keep in mind that if you do need to make a claim, your insurance carrier likely won’t make it easy for you, and getting expert help may be essential to getting all your benefits.
