All Long Term Disability Insurance Policies Are Not Alike

By Floyd Arthur

As more and more Americans are purchasing voluntary insurance coverage using

flexible spending and health savings accounts, the question of how to choose the right

policy for you and your family looms large. Most of us are aware that health

insurance policies vary widely and take great care to compare premiums, deductibles

and maximum out-of-pocket costs before making a choice. Unfortunately, many

people do not know that the coverage offered by disability insurance policies --

especially long term disability policies -- vary widely as well.

What is Long-term Disability Insurance?

Disability insurance is coverage that pays you a portion of your earnings if you are

unable to work due to an illness or injury. Short-term disability typically covers you

for the first six months, after which time long-term disability insurance kicks in.

Some, but not all, states provide short-term disability insurance for all employed

individuals through payroll deductions. However, this coverage is typically very

limited in scope. For example, in New York the maximum benefit is $ 170 per week.

In general, long-term disability insurance covers a portion of a disabled individual’s

earnings from the time he loses his short-term disability benefits until he reaches age

65. However, limitations and exclusions often limit payments and benefit periods substantially.

Common Limitations of Long-Term Disability Insurance

One of the most common misconceptions about long-term disability is that coverage

is guaranteed. In truth, there can be limitations on conditions covered as well as the

length of time benefits will be paid. For example:

“Own-occupation” versus “any occupation”

Most long term disability policies pay a portion of a disabled person’s income if he is

unable to perform the duties of his own occupation for a limited period of time--

typically two years. After that, the individual must be unable to perform any

“meaningful work” for which he is or can be “reasonably trained.” Under these policy

terms, if the insurer determines that a person is able to work at a job that is

comparable to his prior occupation, it can terminate his benefits after two years.

Excluded Conditions

Many long term disability insurance policies limit payments for pre-existing

conditions. Although these conditions may be covered, the coverage period is often

restricted to between two and five years. Coverage for a disability due to a mental

health condition or substance abuse usually is limited to two years as well.

Additionally, some insurers provide limited coverage or no coverage for conditions

that cannot be substantiated by “objective evidence,” such as X-rays, imaging studies

of diagnostic tests. Under these policy terms, coverage can be denied for diagnoses

such as back pain, myofascial pain, fibromyalgia and chronic fatigue immunodeficiency syndrome (CFIDS).

Further, most, if not all, long-term disability policies exclude disability due to self-

inflicted injuries, injuries that occur during war and injuries incurred during the

commission or attempted commission of a crime. Coverage is also denied if the individual is incarcerated.

Physician Choice

All disability insurance policies require certification of the disability from the

patient’s treating physician. However, many long-term policies require an

independent medical evaluation, or IME, by a physician of the insurer’s choice. Other

examinations, such as functional capacity evaluation (which looks at the person’s

ability to perform certain types of job duties, such as lifting and standing) may be

required as well. Some insurers also enlist the aid of a forensic accountant to

determine if the disabled person is generating an income from an undisclosed source.

Full, Partial and Residual Disability

These are important terms that limit the insurer’s exposure if a disabled person

returns to work. Full disability generally implies that the disabled individual has no

meaningful income from work. However, insurer’s define partial or residual disability

by the percentage of earnings lost. For example, if the policy defines partial or residual

disability as 20 percent loss of earnings, a person who returns to work and earns 81

percent of his former salary loses his disability benefits.

Other Long-term Disability Policy Considerations

* Coverage limits: Generally, long-term disability policies provide coverage as a

percentage of earnings, which decreases as a person’s salary goes up. For

example, someone earning $100,000 per year may be eligible for long-term

disability insurance that covers 60 percent of his earnings, while a person

making $300,000 per year may be insured for only 40 percent.

Additionally, some policies allow automatic increases in the amount you receive

(for example 5 percent per year for five years) while others do not.

* Payment caps: Many policies place a cap on total payments from all insurers

Thus, if you have two policies in force (for example, one that pays 60 percent of

your earnings and one that pays 15 percent) you still may only be able to collect

up to a set dollar amount.

* Waiting periods: Some policies require a waiting period of one year.

However, for an additional premium, that period can often be cut to as little as 180 days.

Obviously, there is much to consider when buying a long-term disability insurance

policy, and the cost of making the wrong decision can be very high. That’s why you

need the advice of a skilled professional to guide your choice. Don’t wait until it’s too

late; make a plan to provide for your future today. Contact us at 516-292-3780 to set

up an appointment for your insurance review, or request a free consultation online now.

www.CarmoonGroup.com/contact-us/