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All Long Term Disability Insurance Policies Are Not Alike
By Floyd Arthur
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As more and more Americans are purchasing voluntary insurance coverage using
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flexible spending and health savings accounts, the question of how to choose the right
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policy for you and your family looms large. Most of us are aware that health
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insurance policies vary widely and take great care to compare premiums, deductibles
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and maximum out-of-pocket costs before making a choice. Unfortunately, many
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people do not know that the coverage offered by disability insurance policies --
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especially long term disability policies -- vary widely as well.
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What is Long-term Disability Insurance?
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Disability insurance is coverage that pays you a portion of your earnings if you are
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unable to work due to an illness or injury. Short-term disability typically covers you
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for the first six months, after which time long-term disability insurance kicks in.
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Some, but not all, states provide short-term disability insurance for all employed
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individuals through payroll deductions. However, this coverage is typically very
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limited in scope. For example, in New York the maximum benefit is $ 170 per week.
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In general, long-term disability insurance covers a portion of a disabled individual’s
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earnings from the time he loses his short-term disability benefits until he reaches age
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65. However, limitations and exclusions often limit payments and benefit periods substantially.
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Common Limitations of Long-Term Disability Insurance
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One of the most common misconceptions about long-term disability is that coverage
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is guaranteed. In truth, there can be limitations on conditions covered as well as the
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length of time benefits will be paid. For example:
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“Own-occupation” versus “any occupation”
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Most long term disability policies pay a portion of a disabled person’s income if he is
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unable to perform the duties of his own occupation for a limited period of time--
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typically two years. After that, the individual must be unable to perform any
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“meaningful work” for which he is or can be “reasonably trained.” Under these policy
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terms, if the insurer determines that a person is able to work at a job that is
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comparable to his prior occupation, it can terminate his benefits after two years.
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Excluded Conditions
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Many long term disability insurance policies limit payments for pre-existing
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conditions. Although these conditions may be covered, the coverage period is often
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restricted to between two and five years. Coverage for a disability due to a mental
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health condition or substance abuse usually is limited to two years as well.
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Additionally, some insurers provide limited coverage or no coverage for conditions
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that cannot be substantiated by “objective evidence,” such as X-rays, imaging studies
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of diagnostic tests. Under these policy terms, coverage can be denied for diagnoses
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such as back pain, myofascial pain, fibromyalgia and chronic fatigue immunodeficiency syndrome (CFIDS).
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Further, most, if not all, long-term disability policies exclude disability due to self-
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inflicted injuries, injuries that occur during war and injuries incurred during the
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commission or attempted commission of a crime. Coverage is also denied if the individual is incarcerated.
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Physician Choice
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All disability insurance policies require certification of the disability from the
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patient’s treating physician. However, many long-term policies require an
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independent medical evaluation, or IME, by a physician of the insurer’s choice. Other
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examinations, such as functional capacity evaluation (which looks at the person’s
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ability to perform certain types of job duties, such as lifting and standing) may be
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required as well. Some insurers also enlist the aid of a forensic accountant to
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determine if the disabled person is generating an income from an undisclosed source.
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Full, Partial and Residual Disability
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These are important terms that limit the insurer’s exposure if a disabled person
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returns to work. Full disability generally implies that the disabled individual has no
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meaningful income from work. However, insurer’s define partial or residual disability
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by the percentage of earnings lost. For example, if the policy defines partial or residual
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disability as 20 percent loss of earnings, a person who returns to work and earns 81
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percent of his former salary loses his disability benefits.
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Other Long-term Disability Policy Considerations
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* Coverage limits: Generally, long-term disability policies provide coverage as a
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percentage of earnings, which decreases as a person’s salary goes up. For
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example, someone earning $100,000 per year may be eligible for long-term
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disability insurance that covers 60 percent of his earnings, while a person
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making $300,000 per year may be insured for only 40 percent.
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Additionally, some policies allow automatic increases in the amount you receive
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(for example 5 percent per year for five years) while others do not.
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* Payment caps: Many policies place a cap on total payments from all insurers
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Thus, if you have two policies in force (for example, one that pays 60 percent of
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your earnings and one that pays 15 percent) you still may only be able to collect
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up to a set dollar amount.
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* Waiting periods: Some policies require a waiting period of one year.
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However, for an additional premium, that period can often be cut to as little as 180 days.
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Obviously, there is much to consider when buying a long-term disability insurance
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policy, and the cost of making the wrong decision can be very high. That’s why you
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need the advice of a skilled professional to guide your choice. Don’t wait until it’s too
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late; make a plan to provide for your future today. Contact us at 516-292-3780 to set
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up an appointment for your insurance review, or request a free consultation online now.
www.CarmoonGroup.com/contact-us/