When it comes to long-term disability (LTD) insurance, it is crucial to understand the differences between private disability policies and those governed by the Employee Retirement Income Security Act (ERISA).
Private Disability Policies Rules are Different than ERISA
A private disability insurance policy is one that you purchase directly from an insurance broker or agent, as opposed to secured through employment. For high wage earners, this makes good sense, as it adds another layer of protection to any long term disability insurance provided by an employer. A private policy, also known as an Individual disability insurance policy (IDI), can vary widely in terms of coverage, benefits, and duration. The length of time for which you can receive benefits under a private disability policy depends on the specific terms and conditions outlined in the policy itself.
If your claim for a private policy is being challenged, you may have tried to understand the complex legalese in the policy language. These policies are hard to understand and it is recommended you have an attorney skilled in disability law review the policy to make sense of what the policy insures and for how long.
Duration of Benefits for Individual IDI Policies
In most cases, the duration of benefits under a private disability insurance policy is either time-limited or lifetime:
Time-Limited Policies: These policies specify a set period during which disability benefits will be paid. Common time limits include two years, five years, or even to a certain age, such as 65 or 67. For example, a policy might pay benefits for a period of two years for a short-term disability or extend benefits until the insured reaches the age of 65 for a long-term disability claim.
Most policies have a strict limit on paying mental health claims. This applies to claims for depression, anxiety, mental/nervous conditions, schizophrenia, and other related conditions.
Lifetime Benefits: Some private disability policies offer lifetime benefits, meaning the insurer will pay benefits for the duration of the policyholder’s disability, assuming the disability is deemed total and continuous. Lifetime benefits are more common in high-end policies that are designed to provide comprehensive financial protection. This is also the type of claim most likely to spark a denial, as the cost to the insurance company is very high.
Lifetime benefits may be scaled or full, meaning that they may only pay a percentage of the total amount of disability benefits, which were paid prior to Age 65, for the after Age 65 benefits, for the duration of lifetime. This is often based upon the age of onset of the disability, with claims having a lower payment when the total disability occurs at a certain age – if the policy carries this approach.
It is critically important to review the exact terms of your private disability policy, as insurers may impose certain conditions that affect the duration of benefits. For example, certain policies may include “own occupation” clauses for a limited period of time – usually 24 months – then shifting to an “any occupation” standard, which could make it more difficult to continue receiving benefits without the skilled representation of a disability insurance attorney.
How do the Insurance Companies Define Disability?
The definition of disability is a key factor that influences the duration of benefits. Generally, policies are structured around one of two definitions of disability:
- Own Occupation: A policy that defines disability as being unable to perform the duties of your “own occupation” (the job you held prior to becoming disabled) typically provides more generous benefits for a longer period, since the policyholder must only show they are incapable of performing their current job. Benefits may be paid for a specified number of years or until the individual can return to work, whichever comes first.
- Any Occupation: In contrast, an “any occupation” policy defines disability as an inability to perform any occupation for which the insured is reasonably qualified by education, training, or experience. Policies with this definition of disability may pay benefits for a shorter period and may terminate earlier if the insurer believes the individual is able to perform a different job.
What About ERISA Disability Policies?
ERISA governs most disability insurance plans that are offered by employers as part of an employee’s benefit package. This includes both long-term disability insurance plans (LTD) and short-term disability plans, provided they meet certain criteria under the law. ERISA plans are subject to a detailed regulatory framework that imposes certain requirements on employers and insurance providers.
Unfortunately, insurance companies have twisted the laws governing how ERISA LTD policies are administered to work in insurance companies’ favor. Strict rules about how claims can be challenged, how appeals are handled and limitations on how claimants can fight back make this a difficult battle to take on without the help of an attorney like Jason Newfield.
Duration of Benefits
- Time-Limited Benefits: Similar to private policies, many ERISA disability plans provide benefits for a set period, typically ranging from two years to the participant’s Social Security Normal Retirement Age (SSNRA), which is usually between 65 and 67.
- Permanent Disability: In certain cases, benefits may continue until the participant reaches SSNRA if the disability is deemed permanent. This generally applies in cases where the insured is unable to work at any occupation due to the severity of their disability. However, even in these instances, the insurer will conduct periodic reviews to determine whether the participant remains disabled.
- Offsets: ERISA plans often contain provisions that offset disability benefits with other sources of income. For instance, if you are receiving Social Security Disability Insurance (SSDI) or workers’ compensation, your ERISA LTD benefits will be reduced by the amount you receive from these other sources. While this does not directly affect the duration of your benefits, it is a critical consideration in understanding the total amount of financial support you will receive.
Key Differences Between Private and ERISA Disability Policies
While both private and ERISA disability policies aim to provide financial support in the event of a disability, there are some key differences to be aware of when considering the duration of benefits:
- Definition of Disability: As mentioned earlier, private policies tend to offer a broader definition of disability (e.g., “own occupation”), particularly in the early stages of a claim, whereas ERISA policies often transition to a more restrictive “any occupation” standard after a certain period.
- Duration of Benefits: ERISA plans often provide benefits for a set period (such as two years for the “own occupation” standard) or until the participant reaches SSNRA, whereas private policies may offer more flexibility, particularly if the policy is structured to provide benefits for a longer duration or for the lifetime of the insured.
- Appeals Process: ERISA plans have a strict process for appeals if a claim is denied, and the decisions made by the insurer are subject to judicial review under an extremely limited standard. In contrast, private disability policies may be governed by state law, which can vary widely in terms of the appeals process and the available legal remedies.
The duration of disability benefits is a critical consideration when selecting a disability insurance policy. Whether you are covered by a private policy or an ERISA plan, it is essential to thoroughly review the terms, including the definition of disability, the duration of benefits, and the process for claiming and maintaining benefits.
You are invited to contact Jason Newfield to help you understand the nuances of both private and ERISA disability policies. Having more information from an experienced disability insurance attorney will allow you to make more informed decisions about your financial security and your career, and ensure that you are adequately prepared for the future of unknowns.
