When applying for Long Term Disability Insurance Benefits, it is very important for insureds to understand the terms of their disability policies. This is not an easy task, insofar as their policies can often be quite confusing. Hiller, PC is here to help. The New York disability lawyers at Hiller, PC can explain the provisions of a disability policy in layman’s terms to ensure their understanding and to assist in meeting the burden of proof necessary to get a disability benefits claim approved.
The following are some common terms/provisions of typical long-term disability policies with a brief explanation of each:
Definition of “Disability” or “Total Disability”
The definition of “Disability” is one of the most important terms (if not THE most important term) found in a long-term disability policy. It explains exactly what must shown to successfully prove entitlement to disability benefits. “Disability” or “Total Disability” is typically defined in one of three ways: (1) Own Occupation Only Definition; (2) Any Occupation Only Definition; and (3) a Combination of the Own Occupation and Any Occupation Definitions.
Own Occupation Policies are typically the best types of policies available, and often the most expensive. For the life of these policies, insureds must prove that they are unable to perform the duties of the occupations in which they were engaged immediately prior to the onset of their disabilities. For example, if, before their disabilities, insureds worked as doctors specializing in orthopedic surgery, under Own Occupation Policies, they need only prove that they cannot perform the material and substantial duties of an orthopedic surgeon. If they are able to work in another occupation, they may be able to do so without jeopardizing their benefits.
Any Occupation Policies require insureds to prove that they are unable to perform the material and substantial duties of any occupation. But, depending upon the language in the disability policy, there could be two (2) caveats to that:
First, an Any Occupation Policy may define Any Occupation as an inability to perform the duties of any occupation for which the insured is qualified based on their education, training, and experience. In other words, when evaluating an insured’s disability, the insurance company must consider whether the insured has the education and skills necessary to perform an occupation. So, if someone worked in a heavy labor position (e.g., construction worker) since graduating high school or college, the odds are the insured will not have the skills necessary to perform a sedentary, desk-type job requiring the use of a computer all day.
Second, the definition of Any Occupation may also contain an earnings component. For example, it may define Any Occupation as being unable to perform the duties of any occupation which would allow the insured to earn more than 60% of the insureds pre-disability earnings. So, if an insured worked as a Stock Broker prior to the onset of disability, earning $200,000 per year, the insured could still be found disabled if the only jobs for which the insured is qualified would pay less than $120,000 per year.
Combination of Own Occupation and Any Occupation Policies are the most common. Under these policies, the definition of disability will change after a certain period of time from being unable to perform the duties of one’s Own Occupation to being unable to perform the duties of Any Occupation. Generally, the “change in definition” will occur after 24 months – but we have seen policies in which the definition of disability changes at 12, 60, or even as late as120 months.
Given the complexity of these issues, it is, therefore, critical to fully appreciate the assorted disability definitions in order to determine, and collect, the proof necessary to obtain an approval of LTD Benefits.
Elimination Period or Waiting Period
The insurer’s obligation to pay disability benefits generally is immediately after an insured becomes disabled. Rather, disability insurance policies generally include an Elimination Period or Waiting Period, which is the amount of time an insured has to wait before their long-term disability benefits will begin. Typically, the Elimination Period or Waiting Period is either 90 or 180 days, but it can be longer or shorter depending on the specific terms of the policy.
For example, if an insured were to become disabled on October 1st and the Elimination Period were to be 180 days, Long Term Disability benefits would not begin until around April 1st of the following year.
Monthly Long-Term Disability Benefit Amount and “Other Income Benefits”
Before applying for disability benefits, an insured should be aware of how much money will be payable while on disability. If an insured has an Individual Disability Insurance Policy (i.e., a policy purchased directly with the insurance company rather than through an employer-sponsored plan), then the amount of the monthly disability benefit should be relatively simple to determine. The benefit will be a specific dollar amount listed on the face of the policy (e.g., $5,000, 7,500, $10,000 per month, etc.), without any offset or other reduction from the benefits to which the insured would otherwise be entitled. Typically, the amount of the monthly disability benefit can be found on the page titled “Schedule of Benefits.”
However, if the policy is issued through an insured’s employer (a “Group Policy”), the calculation of the monthly benefit would be more complicated.
The benefit amount would be a certain percentage of the insured’s pre-disability or monthly earnings – typically 50%, 60%, or 66.67% of the insured’s pre-disability salary, but would then ordinarily be reduced by so-called “Other Income Benefits.” “Other Income Benefits” consist of other income that is received at the same time as Long-Term Disability Benefits (and usually due to the same disability for which an insured is receiving Long-Term Disability payments).
Common “Other Income Benefits” include, without limitation:
- Social Security Disability
Income Benefits (for both the insured and the insured’s dependents); - Social Security Retirement Benefits;
- Workers’ Compensation Benefits;
- Government Disability Benefits;
- Certain Retirement Benefits;
- Salary Continuation or Sick Pay;
- Bonuses;
- Severance Pay;
- Personal Injury Settlements; and
- No-Fault Payments
In addition, under a Group Policy, there will usually be a maximum and minimum monthly benefit notwithstanding the calculation of pre-disability income. The Maximum Monthly Benefit is the highest amount that can be receive per month. For instance, the Group Disability Policy may pay 60% of the insured’s pre-disability earnings up to a maximum of $10,000 per month. So, for example, if 60% of pre-disability earnings equals $12,000 per month, but the policy includes a $10,000 maximum monthly benefit, the insured would only receive $10,000.
The Minimum Monthly Benefit is lowest amount that will be received per month after consideration of any other income benefits. For instance, the Group Policy may state that the Minimum Monthly Benefit is the greater of $100 or 10% of the insured’s gross Long Term Disability Benefit.
The best way to demonstrate how the monthly benefit will be calculated under a Group Policy is through examples:
Example 1. Assume the following facts: (1) an insured was earning a salary of $10,000 per month prior to disability; (2) the Long Term Disability benefit is in the amount of 60% of pre-disability earnings; (3) the maximum benefit is $10,000 per month with an offset for Social Security Disability Benefits; and (4) the insured receives $2,500 per month in Social Security Disability Benefits. Under this scenario, the insured would receive a Long Term Disability Benefit in the amount of $3,500 per month: 60% of the monthly salary equals $6,000, and less the Social Security Disability benefit of $2,500, leaves the insured with a net Long Term Disability Benefit of $3,500.
Example 2. Assume the following facts: (1) an insured was earning $25,000 per month prior to disability; (2) the Long Term Disability benefit is in the amount of 60% of pre-disability earnings; (3) the maximum monthly benefit is $10,000 per month; and (4) the insured is not yet receiving Social Security Disability benefits. In this scenario, the insured would receive a Long Term Disability benefit of $10,000 per month. Even though 60% of the insured’s pre-disability earnings had been $15,000 per month, because the maximum monthly benefit is only $10,000 per month, that is all the insured would be entitled to receive.
Example 3. Assume the following facts: (1) an insured was earning $5,000 per month prior to disability; (2) the Long Term Disability benefit is in the amount of 50% of pre-disability earnings; (3) the minimum monthly benefit is 10% of gross monthly benefit; and (4) the insured receive Social Security Disability Benefits in the amount of $1,500 per month and Workers’ Compensation benefits in the amount of $1,000 per month. In this scenario, the insured would receive a disability benefit of $250 per month. Here, 50% of the insured’s pre-disability earnings is $2,500 per month – but after the reductions for Social Security Disability and Workers’ Compensation Benefits (a total of $2,500 per month), the monthly benefit is reduced to $0. However, because the Policy provides for a minimum monthly benefit of 10% of the insured’s gross monthly benefit, the insured would receive $250 per month.
Pre-Disability Earnings or Monthly Earnings
Under a Group Policy, the amount of the insured’s monthly Long Term Disability Benefit will be directly tied to Pre-Disability Earnings or Monthly Earnings. The amount of the insured’s Pre-Disability or Monthly Earnings may also come into play when calculating the amount of a Partial or Residual Disability Benefit (discussed below) under either an Individual or Group Policy.
As its name suggests, Pre-Disability Earnings or Monthly Earnings is the amount of money the insured was receiving before the disability began. Depending on the terms of the Long Term Disability policy, the insurer may look at the insured’s earnings on the day immediately prior to the date of disability, or it may look at the amount of income received in the calendar year(s) before the insured stopped working. To determine pre-disability or monthly earnings, the insurance company may ask to review, without limitation:
- Pay Stubs;
- W-2;
- K-1; and/or
- Income Tax Returns.
Note: an insured’s Pre-Disability Earnings or Monthly Earnings may exclude certain compensation, such as bonus(es) or overtime pay.
Residual or Partial Disability Benefits
Residual or Partial Disability benefit provisions allow insureds to work/earn a salary while still being considered disabled and entitled to monthly disability benefits. But, the ability to work while receiving disability benefits is generally not without its limits.
Unless the policy has a true Own Occupation definition of “Disability” and the insured returns to work in a different occupation, there will be a limit on the amount of money the insured can earn while on disability. For example, the policy may define the term “Disability” as being unable to earn more than 60% of the insured’s Pre-Disability Earnings. In that case, the insured would no longer be considered “Disabled” and no longer entitled to disability benefits if the insured returned to work earning over 60% of prior earnings.
Or, the disability Policy may specifically state that the insured’s disability benefits end if the amount of money earned while disabled (“Disability Earnings”) exceeds 80% of Pre-Disability Earnings.
Whatever the limit may be, any return to work could raise a red flag and cause the insurance company to perform a detailed re-evaluation of the insured’s claim. In addition, a return to work may effect the amount of the insured’s disability benefit.
Generally, if the insured’s Disability Earnings are less than a certain percentage (usually 20% or 25%) of Pre-Disability Earnings, long-term disability benefits will not be reduced. But, if the insured were to earn between 20% or 25% and the maximum limit (e.g., 60% or 80%) of Pre-Disability Earnings, the insurer may reduce the insured’s disability in one of the following ways:
Recurrent Disability
A Recurrent Disability provision allows insureds to attempt to return to work for a specified amount of time after the disability benefits begin without the fear of having to commence a new disability claim if the attempt to return to work were to be unsuccessful. In other words, if the insured were to try to return to work but became disabled again within a specified period of time (see below), the insured would not have to satisfy another Elimination Period. However, there are a few things the insured should keep in mind:
- A Recurrent Disability typically must be due to the same cause as the prior/original disability.
- Some policies require insureds to be continually covered under the disability policies in between the initial and recurrent claims for disability benefits. This means that insureds would have to return to work for the same employer to be eligible to take advantage of the Recurrent Disability provision.
- The amount of time insureds can attempt to return to work varies from policy to policy; typically ranging anywhere from 3 months to 12 months. For example, the disability policy may state that the insurer will treat the insured’s subsequent disability as part of the prior claim and the insured will not have to complete another Elimination Period if the recurrent disability were to begin within 6 months of the end of the initial claim for benefits. But, if the insured returns to work for longer than 6 months and becomes disabled again, the insured would have to file a new claim and wait until the end of a new Elimination Period before benefits begin again.
Mental/Nervous or Mental Illness Limitation
Many Policies limit the duration of disability benefits if the insured’s disability is “due to” or “caused or contributed to by,” a mental illness or psychiatric condition. This is called a Mental Illness Limitation or a Mental/Nervous Limitation.
If the policy contains this provision, the maximum benefit period is typically 24 months – but it can be shorter or longer depending on the terms of the specific policy. The Mental Illness Limitation is typically applied to disabilities resulting from depression, anxiety, personality disorders, eating disorders, and psychosomatic disorders.
On the other hand, the policy may specifically exclude certain conditions from the Mental Illness Limitation. Common conditions that are excluded include: organic brain disorders, Alzheimer’s disease, dementia, and schizophrenia. Another less common exclusion is bipolar disorder.
Pre-Existing Condition Limitation/Exclusion
If the insured’s disability is based on a medical condition or symptoms that began prior to coverage under the disability insurance policy, it may be considered a Pre-Existing Condition, and disability benefits could be limited or excluded. A Pre-Existing Condition is typically defined as a condition for which the insured (1) received treatment; (2) took, or was prescribed, medications; or (3) reasonably should have sought treatment, in the 3 months before the insurance coverage effective date. This 3 month period (which can vary from policy to policy) is often called a “look back period.” If the insured is found to have a Pre-Existing Condition, the insurer can exclude disability benefits altogether, regardless of the severity of the insured’s disability.
However, the good news is that most policies contain a “pre-existing condition waiting period.” This is the amount of time (typically 12 months) that the insured has to wait before a pre-existing condition will be covered under their policy. In other words, even if a condition is pre-existing, if the insured’s disability begins 15 months (for example) after disability coverage under the policy begins, long-term disability benefits are no longer excluded.
This limitation tends to be more of an issue in Group Policies because employees sign up for coverage at the inception of their employment or during an open enrollment period, and are not subject to underwriting. With Group Policies, a pre-existing condition review is generally not done until after a claim for benefits is filed. On the other hand, this limitation is typically not an issue with Individual Disability Insurance Policy because insurance companies conduct a pre-existing condition review as part of the underwriting procedures before issuing the Policy.
More good news for policies issued in New York: In New York, insurance companies cannot completely preclude benefits if the insured suffers from a pre-existing condition. Rather, the benefit start date will be tolled for 12 months beginning on the date the insured’s LTD coverage became effective.
Contact an Attorney for Help with Your Disability Claim
Disability insurance claims are difficult to navigate regardless of where you in the process. Having knowledgeable New York disability attorneys assisting you from the start of your claim will help you to avoid some common pitfalls that plague many claimants. Contact the NY disability insurance lawyers at Hiller, PC at (212) 319-4000 to get started today!
