Although many working adults have life insurance policies designed to protect their families upon their untimely death, becoming disabled actually poses a far greater risk than dying early. The CDC estimates that around 1 in every 4 U.S. adults lives with a disability that impacts their major life activities. If you don’t have long term disability insurance, you could find yourself facing an extended period of time without a paycheck if you develop a medical condition that keeps you from working. Read on to learn more about the benefits that long term disability insurance can typically provide, as well as the major differences between individual and group disability policies.
Individual vs. Group (ERISA) Disability Policies
There are two primary categories of disability benefits: (1) individual policies that operate much like health insurance policies; and (2) group policies governed by the Employee Retirement Income Security Act (ERISA). Group policies are often offered as a perk of employment, generally at no or low cost to the insured. Individual policies, on the other hand, tend to be more expensive and can be purchased through an insurance broker.
Though individual long term disability policies can be more expensive than ERISA policies, you truly do get what you pay for—these policies tend to have fewer hoops to jump through to qualify for benefits and enjoy a much less strict standard of review if you appeal a denial of benefits. If your claim for ERISA benefits is denied, you’ll need to prove not only that you’re disabled, but also that this denial was “arbitrary or capricious” and not merely a good faith difference of opinion.
Many workers don’t have either type of policy – only about one-third of workers have an ERISA plan, while around one-sixth of workers have an individual long term disability plan.
Disability Insurance Benefits Can Be Capped
If your application for long term disability benefits is approved, you’ll usually receive a monthly payment of about 66 percent of your pre-disability income. This means if you previously earned $6,000 per month (pre-tax), you’ll receive around $4,000 per month in disability benefits. This amount is generally capped, though; ultra-high-earners may get the maximum benefit available, but it won’t total 66 percent of their pre-disability income.
Once you’re approved for long term disability benefits, don’t think you’re home free through age 65. You’ll need to continue to provide medical records and physician statements to your long term insurance carrier, usually once every three to six months.
Look at How the Fine Print Defines “Disability”
The definition of “disability” can vary based on the policy terms, though most ERISA policies will use a fairly standard definition of disability – an inability to perform the material substantial duties of your occupation and an inability to earn at least 80 percent of your pre-disability income in another job. Individual disability policies may have “better” definitions of disability that will still pay benefits even if you could earn a similar income in a different occupation.
A true “own occupation” disability policy can be quite beneficial if your disability allows you to transition into another occupation. You may be able to qualify for your full benefits while continuing to earn an income in another occupation – for example, a physician or dentist who can no longer perform medical procedures but who can teach or serve in an administrative capacity.
There’s one caveat, however – many ERISA policies and some individual policies will have a definition of disability that shifts over time. For ERISA policies, after 24 months of benefits, you’ll be assessed under an any occupation standard that will deny you benefits if your disability allows you to perform sedentary work. Individual policies don’t usually have such strict limitations, but it’s certainly worth looking at this fine print before you take out a disability policy.
If you have more questions about long term disability insurance or the disability claims process, look no further than Dell & Schaefer, Nationwide Leaders in Protecting Your Disability Insurance Benefits. Our skilled attorneys have helped thousands of people recover disability benefits under both individual and ERISA policies.