The Social Security Administration reports that job loss can negatively impact long-term health due to reduced earnings and lost health insurance. Job loss is not always preventable. When a disability causes job loss, however, insurance policies can mitigate the effects by providing coverage at a crucial time.
When purchasing a long-term disability (LTD) insurance policy, you must consider many factors. Benefits under an LTD policy replace a portion of the income lost due to disability. This coverage presents a crucial initial question: is the disability preventing the claimant from doing any form of work or preventing the claimant from working in their field?
Different LTD policies offer different coverages based on the answer to this question. Insured policyholders must understand the coverage they deserve to enforce their contractual right to LTD coverage when necessary. A thorough understanding of coverage benefits can also help employees develop a comprehensive insurance strategy to choose the right coverage for their unique situation.
What Is Any Occupation Coverage?
Coverage is limited when an LTD policy uses the any occupation definition. The disability must prevent the policyholder from any suitable gainful employment (based on their age, experience, and education). This scope means that a policyholder might not receive benefits if they can still work in some position comparable to the job they held before becoming disabled.
The specific details of what type of employment is suitable will vary depending on the specific policy language. Carefully review the coverage before accepting an insurance policy. If the insurance company uses an expansive definition of any occupation or suitable employment, the policy might not cover you when you need it most.
What Is Own Occupation Coverage?
LTD policies covering the claimant’s own occupation are more limited. It is easier for a claimant to prove they are disabled because LTD coverage extends to any disability, preventing the policyholder from working in the same occupation they did before they were disabled. There are many different definitions of a person’s own occupation within the insurance industry.
For example, Guardian Life offers several different LTD policies with varying definitions:
- True own occupation coverage allows the claimant to get benefits if they cannot work in the exact position held before the disability. A claimant can work in a different position or field and still receive full benefits under the LTD policy.
- Modified own occupation allows the claimant to get benefits if they cannot work in the exact position held before the disability. The difference here is that benefits are not available if the claimant takes on different work in another position.
- Two-year true own occupation plans start with a period of true own-occupation coverage. At the end of two years, the policy converts to modified own-occupation coverage. The claimant can no longer receive benefits if they work in another position or field.
- Two-year modified own occupation plans offer two years of modified own occupation coverage. At the end of two years, the plan converts to any occupation coverage, and the claimant can only receive benefits if the disability prevents them from working in any occupation.
The appropriate type of own occupation coverage a person needs will depend on the specific details of their occupation. The more specifically detailed the description of a person’s occupation is, the less likely they can find comparable work. LTD benefits will be crucial. Policyholders who want the option of finding work to supplement their LTD benefits must be sure to select a true own occupation policy instead of a modified policy. These factors are just two of many that determine the correct type of LTD coverage for any given situation.
Can LTD Policies Use Both Definitions?
Yes – in fact, most LTD policies do use both definitions. The cost of a true own occupation policy through retirement age will not be reasonable for most workers. To create affordable policies, many insurance companies have created policies that offer a period of own occupation coverage (usually two to four years) followed by any occupation coverage after that.
Here’s how it works:
- No benefits are available until the end of the waiting period. (Read more about the waiting period below.)
- At the end of the waiting period, the policyholder is entitled to benefits if the disability prevents them from working in their own occupation.
- At the end of the true own occupation period, benefits will only continue if the disability prevents the claimant from working in any occupation.
The different periods can be confusing. Unfortunately, confusion in any insurance policy can lead claimants to get less than the full value of benefits they deserve.
What Is the Waiting Period?
Both short-term and long-term disability policies have a waiting period before benefits are payable. With short-term disabilities, this period can be as short as thirty days, but the waiting period is usually much longer on a long-term disability policy.
Mutual of Omaha reports that LTD waiting periods generally range from ninety days to a full year. A comprehensive insurance strategy should account for this time. A short-term disability policy can help bridge the gap, and other policies may suit a particular situation.
Do LTD Benefits Replace the Full Value of Lost Income?
Most LTD policies cover only a set portion of lost income. Benefits usually pay 50 to 80 percent of pre-disability earnings. For some policyholders, this may be enough, but others might choose to supplement these benefits with other insurance policies or even savings. The critical point is to get prepared for what a policy will pay. Misunderstandings can lead to insufficient funds when they are needed the most.
Which Policy Is More Expensive?
The general rule of insurance coverage is this: the easier it is to claim benefits under a policy, the more expensive the premiums will be. As a result, own occupation policies are usually more expensive than any occupation policies. But ease of access to policy benefits is not the only thing that affects the cost of coverage.
Many other factors can also affect the cost of LTD policy premiums, such as:
- Smoking history
- Occupational risks in dangerous jobs (for example, firefighting)
- Risky recreational activities
Discuss all LTD coverage options with a qualified insurance agent. It is better to get the necessary level of coverage than to be without coverage when needed. If the premiums are too high, you can address many factors to adjust the cost of coverage.
What Other Factors Should You Consider in Choosing an LTD Policy?
There are many terms in an LTD insurance policy. Own occupation versus any occupation is only one factor to consider.
When shopping for an LTD plan, consumers must carefully assess:
- The benefits they will need
- How long the purchaser wants LTD benefits to last
- The waiting period that applies to plan benefits
- The ability to cancel and renew the LTD policy as needed
- The ability to work while receiving LTD benefits
- Whether the coverage applies to work in one’s own occupation or any suitable occupation
- Protections for student loans
- Future increases to benefit payments
- Cost of living adjustments to benefit payments
Will Any Deductions Reduce My LTD Benefits?
Yes! When choosing an LTD plan, it is vital to know the deductions that will reduce the benefits paid out directly by the insurer. Some LTD benefits are taxable. Claimants must plan to pay taxes out of their benefits because the employer or insurance company may not always withhold funds from benefit payments. The claimant may lose a portion of the LTD benefits if the claimant is receiving Social Security disability income (SSDI).
The Bureau of Labor Statistics reports that many LTD plans deduct the value of SSDI benefits from policy benefits, dollar for dollar. Many plans require claimants to apply for SSDI (if they qualify) to reduce the cost of benefits the insurer pays. The SSDI benefits can equal most LTD benefits. Policyholders unprepared for this deduction can receive far less disability income than anticipated. The LTD may also deduct other public disability benefits from LTD benefit payments, so carefully assess all deductions when considering coverage.
What Medical Conditions Will Qualify For Own Occupation and Any Occupation Coverage?
Many medical conditions can qualify a person for LTD coverage. Most insurance policies do not list specific medical conditions because there are too many. Instead, the deciding factor is how a disability affects an individual’s ability to work. A doctor must certify that the policyholder cannot work (either in their own profession or any profession) based upon their disability. If the insurance company does not agree with this determination, it has the right to require the claimant to have an independent medical exam from its doctor.
Despite the name, a doctor the insurance company employs performs this independent exam, so some bias against the claimant can result. A disability lawyer can help claimants protect their legal rights regarding an independent medical examination. If the insurance company’s doctor determines that the disability does not prevent the claimant from working, the insurance company will deny the claim altogether. There are many different ways that the claimant can challenge this finding to protect the policyholder’s contractual right to insurance coverage.
What Happens If the Insurance Company Denies the LTD Claim?
Filing an insurance claim can be an intimidating process. Policyholders face the power of a large company that has trained its claims adjusters to pay as little on as few claims as possible. Armies of lawyers in these organizations defend lowball offers and claim denials.
With all this power, some policyholders feel they cannot successfully appeal the denial of a claim. But this is not the case. An insurance policy is a legally binding contract. When the insurance company improperly denies a claim, this is a breach of contract, and the policyholder has legal remedies to get the coverage they have paid for.
Most insurance policies contain detailed provisions for an internal appeal process within the company. This process usually starts by escalating the claim to a supervisor or manager, who will review the procedures used to deny the claim.
This person will review the procedures used to deny the claim. In some cases, the procedures are not the problem. The claimant might need to challenge substantive medical issues (like the determination that they can work) or substantive legal issues (like the scope of coverage afforded by specific language in the policy). In that case, you might have to escalate the appeal to a doctor or lawyer who works for the insurance company.
There are detailed steps for making an internal appeal within the insurance company. If this fails, a claimant can file a lawsuit against the company and appeal the denial in the court system. Several different legal claims a person can make in this type of lawsuit. First, you might pursue a case for breach of contract, based on the simple fact that the insurance company is refusing to provide coverage as required under its policy.
Second, many states have insurance statutes that create a legal claim for bad faith insurance claims. These statutes hold insurance companies accountable for wrongly denying claims, paying less than is owed, delaying required payments, and preventing policyholders from getting the benefits owed to them. Bad faith statutes usually allow policyholders to seek compensation for the financial losses they incurred from the denial of benefits and punitive damages to punish the insurance company for putting its financial interests ahead of its client’s.
Knowing your rights when an insurance company denies your claim can be difficult. A long-term disability lawyer can advise you of the best options to appeal and navigate the process for you. This is true whether you need to file an initial LTD claim, appeal a denial with the insurance company, or file an ERISA lawsuit in federal court.
Following graduation from Loyola Law School in New Orleans in 1990, Price McNamara served as a Federal Judicial Law Clerk to the Honorable John M Shaw, Chief Judge, United States District Court Western District of Louisiana.
Mr. McNamara founded J. Price McNamara ERISA Insurance Claim Attorney, and began putting his past experience to work for the injured and disabled clients he now represents against the insurance companies in personal injury and long term disability and other insurance disputes in both federal and state courts