Understanding Differences in Disability Insurance

We all have regular expenses we need to meet, and as we progress through our careers, those expenses increase. Professionals and executives with extensive experience, particularly those with their own businesses, can be put in an extremely difficult position when a disability prevents them from practicing their profession, halting their stream of income while expenses continue to mount.

For this reason, many professionals choose to purchase disability insurance that provides benefits to make up for lost income if a disability should prevent them from working. But when choosing disability coverage, evaluating insurance needs, or filing a claim for benefits, it is important to understand differences in liability insurance policies. So, here’s an overview of disability insurance to help establish the basics. If you have questions or need help recovering benefits under your policy, an insurance law attorney can review your particular circumstances to provide answers and assistance.

Short-Term vs. Long-Term Policies

One of the key differences between disability insurance policies is the duration of coverage. Many people buy two separate policies, one for short-term coverage and one to provide long-term protection. A short-term policy will usually start to provide benefits soon after you become unable to work due to a disabling condition. (This is known as having a short elimination period.) Often, these policies will start paying benefits after two weeks. However, a short-term disability insurance policy will usually only pay benefits for a few months. So, the protection you receive from this type of policy will not last long.

Because short-term disability policies will not ever have to pay out very much, the cost of these policies is often relatively low. They will generally not replace your full income but will usually pay a percentage of your income.

Long-term disability insurance policies, as the name implies, are designed to provide income for a longer period of time. Some policies may continue to pay benefits until you reach retirement age if your disability continues for that long. However, you will not become eligible to receive income replacement payments until a significant period of time has passed. These policies have a long elimination period. So, having both short-term and long-term policies can provide continuous coverage. 

It is important to be aware, however, that even when provided by the same insurance company, the terms included in short-term and long-term policies can be quite different. A condition that qualifies you for benefits under one policy may not be accepted under the other. Moreover, you have to complete a separate application with full medical evidence to receive coverage under your long-term policy, even if you were approved for benefits for the same condition under your short-term policy.

Private vs. Group Coverage

Another critical difference between disability insurance policies involves the way in which the policy is purchased. A disability policy can be a group policy that covers several people or an individual policy with terms negotiated directly between the policyholder and the insurance company. Employers often enter into contracts with disability insurers so they can offer group policies to their employees as a benefit. The terms of these agreements may change as the employer renegotiates new contracts.

Group policies offered through employers are governed by federal ERISA laws, while individual policies are governed by state laws, such as the requirement to act in good faith. This can make a significant difference if the insurance company denies your claim or discontinues benefits. Remedies available under state law are often much more extensive when an insurance company has failed to live up to obligations under a disability policy. So insurance attorneys can often recover much more for clients who have been wrongfully denied benefits that should have been provided under a private disability insurance policy than under a group disability insurance policy.

It is important to understand that private and group disability insurance policies operate completely differently than disability insurance provided through the Social Security Disability Insurance program operated by the federal government.

Terms in the Policies

Other key differences in disability insurance involve the terms of the policies purchased. The terms are part of a contract that governs the responsibilities of both parties. While there can be numerous terms that affect your ability to receive benefits, some of the key terms include:

• The duration of benefit payments. Will they discontinue after a certain period even if your disability continues to prevent you from working?
• The amount of benefit payments. Are they a certain percentage of your income? If so, does that income calculation include bonuses or benefits? Is the amount a fixed sum, and if so, is it indexed to inflation?
• The conditions that make you eligible for benefits. Are mental health conditions included? Is there specific evidence required to demonstrate that you qualify for benefits?
• Own occupation vs. any occupation. Are you eligible for benefits if you are unable to perform the work you were doing at the time of the onset of your disability, or do you need to demonstrate that you are unable to perform any type of occupation to receive benefits?
• Exclusions. Are certain conditions not covered? Will the presence of certain circumstances disqualify you from receiving benefits?
• Can the insurance company cancel your policy if you continue to pay premiums on time?

The fine print can have a huge impact on your coverage as well as your rights if your claim is denied. Because insurance policy terms can be so complex, it is a good idea to review the policy closely with an attorney or other professional who can explain the impact.

Help Resolving Problems with Insurance Companies

Insurance companies often portray themselves as helpful and supportive in times of need, but the reality is that they operate to make money, and they make more of it by denying and undervaluing claims. When their actions violate the law or the terms of their contracts, an attorney who focuses on insurance can help you achieve the result you deserve. Ver Ploeg & Marino, P.A. has decades of experience resolving insurance disputes, often through negotiation, but in court when necessary. We invite you to schedule a confidential consultation to learn more about how we may be able to help.

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