Many working adults are enrolled in programs or have insurance policies that protect their income in the event a disease or medical condition prevents them from engaging in gainful employment. Disability insurance can be obtained through an employer group program or purchased as an individual policy.
Distinction between individual and group policies
Disability insurance is intended to replace income lost due to a medical disability. This coverage may be purchased by individuals on their own "individual policy," or provided as a benefit by employers at no or low cost to employees "group policy." Income replacement benefits paid under a group policy are taxable. benefits paid under an individual policy are not taxable, under the rationale that the policy premiums were totally paid with after-tax dollars. Adequate income protection should include both an STD and LTD policy. Your STD policy should match the length of teh LTD waiting period to ensure there is no lapse in coverage.
Every plan is different. Policy language governs. Read your contract.
Short Term Disability (STD)Group Plans
A typical group policy will pay short term disability benefits for 90-180 days. Sometimes these benefits are funded and administered by an insurer and sometimes funded by the employer and administered by a third party administrator. The employer is usually very involved with the short term disability claim.
The plan usually will pay 60-100% of pre-disability income, depending on the policy. A cap on benefits is common - for example, a plan may pay 60% of salary up to a maximum salary of $50,000.00 per year, or may declare a maximum benefit of $500.00 per week. Certain conditions may be excluded from coverage, or coverage may be limited - for example, a disability that is the result of a pre-existing condition may not be covered until teh employee has been covered by the plan for 12-24 months. Disability resulting from elective surgery is a common exclusion.
STD plans are usually more lenient than LTD plans in the type of medical documentation that needs to be submitted to support the claim, since the length of the claim is limited to 90-180 days. It is almost always necessary for the employee to be under the care of a doctor who will provide satisfactory evidence of disability. Policy language usually states that an employee may receive STD benefits if medically unable to perform his or her usual job.
Income from other sources usually offsets STD benefits - for example, workers' compensation wage loss benefits. Since workers' compensation pays 66% of pre-disability earnings, no STD benefits may be payable.
Short term disability policies are not typically purchased on an individual basis. Individuals instead purchase long term disability insurance through an insurance company and the individual deals directly with the insurance company.
Long Term Disability (LTD)Group Plans
Large employers may self-insure and self-administer these plans, but it is much more common for an insurer to be the sole administrator of the claim, and for the requirements for proof of disability to be more stringent. For this reason, it is not unusual for an employee to receive STD benefits for the maximum period and then be abruptly denied LTD benefits. Patients must apply for their LTD benefits. STD benefits do not automatically roll-over into LTD benefits.
Most group LTD plans pay 60-80% of pre-disability earnings for a specific period of years or until age 65. In order to qualify for benefits detailed medical information must be provided to the LTD carrier as the onset of the claim and periodically throughout the life of the claim is requested. Failure to do so results in denial or termination benefits.
Usually there is a 60-180 day elimination or waiting period following the onset of disability to qualify for benefits. STD policies are usually written to provide benefits during the waiting period of an LTD policy. It is a good idea to have both an STD and LTD policy. Your STD policy should be for the same length of time that your LTD policy elimination or waiting period is. Check your policies to ensure that when the STD plan benefits end that the LTD benefits would begin.
Certain conditions may be excluded or limited as discussed above in the STD section. Often the policy will limit coverage for so-called "mental-nervous" conditions to a maximum or 24 months. Policy language governs and there is much variation from plan to plan.
Most policies have two definitions of disability - "Own Occupation" and "Any Occupation." During the "Own Occupation" period, benefits are payable if the employee is unable to perform his or her regular job or a similar job. The Own Occupation period is at the beginning of the claim and is usually two years in length. After that, benefits ar payable only if the employee is unable to perform any operation.
During the "Any Occupation" period, benefits are only payable if an employee is unable to perform any occupation for which he or she is or becomes reasonably fitted by education, training or experience. Some policies state that if the employee is unable to perform work that pays at least 60-80% of pre-disability earnings, the person will be considered disabled, while others do not take earning potentialinto account. Income from other sources offsets LTD benefits. For this reason, most LTD carriers require claimants to file for Social Security Disability as soon as possible. Often the LTD carrier will pay attorney's fees for the employee who is represented by an attorney at the hearing level.
Some LTD carriers assign rehabilitation professionals to try to help the employee transition back to work. Failure to cooperate with rehabilitation usually results in termination of benefits. Some carriers will continue to pay full or partial LTD benefits for a specific period of time while the employee is returning to work.
Individual LTD policies are available from insurance carriers and can be tailored to teh individual's needs. The benefits payable are generally a percentage of pre-disability earnings as evidenced by income tax returns. Premiums and coverages vary greatly, depending on the age, health and usual occupation of the individual. The same general principles are applied for the policies as outlined above.
It is important to consult the plan summary or policy to determine how to appeal a denied claim and to file appeals in a timely manner. Most policies do make allowances for late appeals if an individual is incapacitated or is otherwise unable to file an appeal. Please refer to Chapter 4 of this publication for guidance on filing an appeal if your claim is denied.
State Sponsored Disability Programs
There are some states that offer state sponsored disability income protection for state residents. These programs are state-mandated and funded through employee payroll deductions. They provide short-term wage-replacement benefits to eligible workers who experience a loss in wages when they are unable to work for a NON-WORK RELATED illness, injury or medically disabling condition. Residents of states that offer these programs should contact their State Department of Labor or Employment for more information.