Long-Term Disability

These policies provide disability income benefits that replace wages or earnings that have been lost due to disability.  There are two types:

The first type is provided by an employer as part of an employee benefit package.  These “group plans” must conform to the requirements of the federal Employees Retirement Income Security Act (ERISA), which sets minimum standards for coverage and claims processing.  Typically, they provide a benefit which represents a percentage of the employee’s annual earnings and may or may not provide for cost of living adjustments.  Payments generally commence after a prescribed period (usually six months) of continuous disability and terminate when the employee reaches normal retirement age. 

Most group policies require that in order to qualify, the employee be “totally disabled.”  This is usually defined as the inability to perform the main duties of his or her own occupation for a period of two years and thereafter as the inability to perform any occupation.  The benefits payable under these policies are generally offset (reduced) by the amount of income received from other sources—such as workers compensation, Social Security disability, employer-sponsored retirement plans, etc. 

The other type of disability income policy is sold to individuals—typically professionals, business executives and other high earners who are not covered by group plans, or if they are, to supplement that coverage.  These “individual” policies are not regulated by federal law and vary wildly in terms of the coverage provided, cost, and other important factors.  Typically, the amount of the benefit is specified in the policy, and the premium is directly related to the benefit. 

Some policies pay benefits for partial disabilities, and others don’t.  Some provide for annual cost of living adjustments.  Some pay benefits for a limited period of time, others until normal retirement age, and still others for life.  Most individual policies currently on the market define disability in terms of the individual’s own occupation for a limited period of time, after which the stricter “any occupation” standard applies.  Modern individual policies also commonly contain offset provisions similar to those contained in group policies. 

Individual policies used to be more generous than they are now.  Someone who purchased a policy prior to 2000 will generally have better coverage than one can obtain purchasing a policy today.  That’s not always the case, but it is true most of the time.  Individuals looking to obtain coverage now can still obtain a decent policy with a reputable carrier, but chances are they will pay an upcharge for it. 

Once approved, both group and individual claims for disability income benefits remain subject to various policy provisions, including requirements that the insured remain out of work and continue to receive appropriate medical treatment.  They are also subject to periodic (usually annual) reviews by the carrier, at which time updated medical and other records must be submitted so the carrier can determine whether disability continues.  One must be careful in preparing these updates.  It’s not uncommon for carriers to terminate benefits based on a sloppy update submission or when the standard of disability changes.  Indeed, some carriers are notorious for doing this.

The challenges of filing claims and securing benefits are described elsewhere on this website.  Anyone perusing the site is encouraged to review these topical summaries.