Disability Insurance: More Important Than Life Insurance?

By David S. Bross, Esquire

While most Americans insure their lives and material assets, like their homes, cars, etc., many overlook the need to protect their most valuable asset — the ability to earn an income.

According to Kenneth Podell, CLU, a financial advisor with Mass Mutual, insurance claims studies indicate that the odds of becoming disabled for 90 days or longer are much greater than dying during one’s work years.

At age 27 = 2.7 times greater
At age 42 = 3.5 times greater
At age 52 = 2.2 times greater

This article will briefly review individual disability insurance (“D.I.”).

Individual Contract (“D.I.” Policy)

An individual who is concerned that a disability may drastically reduce or eliminate current income will often purchase individual income insurance – a “paycheck protector”– from an insurance carrier. An application is completed, providing medical history for at least the past five years, employment background and income for at least the past three years, and other documentation, which may be required for underwriting purposes (the company assesses whether it’s worth taking the risk). These policies are commonly underwritten for white-collar workers. There are some available for blue-collar workers, but they are often limited to five years of coverage. Most of these policies do not offset for workers’ compensation or social security benefits.

Benefits, Costs, Options

Underwriting guidelines until the past few years were, generally, to allow insurance to cover up to 60% of gross income. There is very aggressive risk management now, so applicants may be lucky to get 50%. If an applicant’s income is $3,000 per month, the company may allow $1,800 per month in Disability Income. The less expensive policies have longer elimination periods (or “deductibles”). That is, if one secures a policy with a 30-day elimination period (where the check becomes payable for the period commencing on the 31st day of disability), that will be much more expensive than a policy with a 90-day elimination period. Just as with a life insurance policy, options or “riders” a/k/a “endorsements,” are available at additional costs. There is the “option to purchase additional insurance” without medical re-examination, which is generally offered every three to five years up until a cut-off age, and, which still requires proof that current income has increased to justify the amount of increased coverage requested. Some D.I. policies stop coverage at age 65, or reduce benefits payable if disability occurs after age 60, but then offer “lifetime” riders so that the monthly income will go up annually with inflation. Finally, as to cost, D.I. policies cost more to initially purchase the older you get, but, premiums do not go up once purchased. Benefits are tax-free, since the insured pays the entire premium.

What to Look for in a Disability Insurance Policy

Definition of Disability: Are education, experience, and past earnings taken into account in determining whether the insured is qualified to resume work? Many policies provide for an initial own-occupation definition of disability, for a specified period of time, after which a different definition of disability applies.

Partial or Residual Benefits: Partial or residual disability benefits may be paid in some policies when the impairment allows the insured to perform only a portion of his or her duties. The provision may also pay benefits in the event the disability reduces the insured’s income by a certain amount (for example, 20% or more) from pre-disability levels.

Cost of Living Adjustment: Is there a cost-of-living adjustment (COLA) which would increase benefit payments after a disability occurs?

Cancellability and Renewability of a Policy: Except for nonpayment of premiums, is the policy non-cancellable or guaranteed renewable? “Non-cancellable” generally means that the policy can be renewed each year at a fixed premium, for a specified time period. Guaranteed renewable is similar, but allows the insurance company to increase the premium.

Waiting and Elimination Period: Is the waiting or elimination period proper for the insured’s circumstances? Commonly available periods include 90, 180 and 360 days. Naturally, the longer the elimination period one selects, the lower his or her premium payments will be. However, a person’s needs, cash reserves and income sources should be the deciding factors in selecting a proper elimination/waiting period.

Benefit Period — What benefit period should be selected? Since a long-term medical disability can be financially devastating, one should elect a long term benefit where possible. Some companies offer lifetime benefit periods, but periods as short as 24 months to 60 months are also available.

Short-Term Disability (STD) Beneﬁts

All disability claims begin with a claim for “short-term” benefits (STD) as opposed to long-term disability benefits (LTD). If you live and work in New Jersey, you have the benefit of the fact that New Jersey is one of only five states which provides compulsory short-term disability benefits to workers (Pennsylvania, for example, does not). Under the New Jersey Temporary Disability Benefits Law, cash benefits are payable when you cannot work because of sickness or injury not caused by your job. Employees whose employment is covered by the New Jersey Unemployment Law are also protected by a mandatory disability insurance system. In order to have a valid claim for disability, you must have had at least 20 calendar weeks in covered NJ employment in which you earned $143 or more (called “base weeks”), or have earned $7,200 or more in such employment, during the 52 weeks immediately before the week in which you became disabled (called “base year”). The weekly benefit amount is calculated on the basis of your average weekly wage. Claimants are paid 2/3 of their average weekly wage up to the maximum amount payable, which is $572.00 for disabilities beginning on or after January 1, 2012. The maximum amount of benefits which may be paid for each period of disability is 2/3 of the total wage in New Jersey covered employment paid to you during the base year, or 26 times the weekly benefits amount, whichever is less.

You may be eligible for temporary disability insurance benefits if you are disabled due to pregnancy. Eligibility for benefits is determined in the same way as any other disability. The usual payment period for a normal pregnancy may be up to four weeks before the expected delivery date and up to six weeks after the actual delivery date. However, if there are medical complications or you are unable to do your regular work, your doctor may certify to a longer period before and after the birth of your child during which you cannot do your regular work.

Long-Term Disability (LTD) Beneﬁts

If you have the misfortune of being unable to return to work after six months, but had the foresight to have purchased long-term disability insurance, you should now make a claim for LTD benefits. Most LTD claimants have purchased long-term disability insurance through their employers, pursuant to the federal law known by the acronym “ERISA”. There are marked differences between individual and group policies, primarily because of the differences between the “common law” and ERISA. Suffice to say that claims brought under the ERISA law tend to be more difficult to win if they are denied and/or terminated. Regardless of which type of long-term disability insurance you may have, there are some general rules of thumb to keep in mind:

1. First, be sure to obtain and read a copy of your actual policy. As simple as this may sound, I have found that few people ever bother to do this, and most employers don’t provide a copy unless specifically asked. You have a right to obtain a copy of your policy and you are strongly advised to read it fully as soon as possible. Your policy, in conjunction with the ERISA law, defines your rights and duties. Important: obtain the actual policy, not just a summary from an employee handbook.

2. Complete and file your claims application in a timely fashion. I suggest to my clients that, whenever possible, they employ certified mail. It is not unusual for claims to be denied because of the allegation that a claim was not received in time. Watch your deadlines carefully. Just as important, it is up to you to follow up with your doctor(s) to make sure that he/she completes any necessary claim forms timely as well. Whenever possible, review the claim form with your doctor personally (or at least with the doctor’s nurse or secretary), make sure it is signed by the doctor, and then file it yourself with your employer or your employer’s insurer. Similarly, if, as in most cases, your disability plan is being administered by an insurance company, be sure that your employer provides any documentation necessary, e.g., proof of earnings, job description, etc.

3. If you have supplied your employer and/or insurer with all documentation requested, don’t assume that your claim will be quickly approved. Delays are common. Don’t be afraid to follow up on a regular basis to ascertain the status of your claim. Document all telephone conversations and make written inquiries. If additional documentation is requested, make sure it is provided as quickly as possible, notwithstanding that all too often these requests for “additional documentation” are unnecessary and used by insurers to delay and discourage claimants. Regardless of the request, don’t give the insurer any reason to deny your claim based on “lack of cooperation.”

Standard Provisions

Long-term disability policies under ERISA typically have a number of other significant provisions which could dramatically affect your claim. One provision typically restricts claims for “mental impairment” to 24 months. This provision can get particularly nasty for claimants who have a physical disability but are also suffering from depression. Insurance companies will often invoke the “mental impairment” clause to terminate claims, even when depression is a secondary diagnosis. By no means should you forego treatment for depression or other mental health problems if you need it. However, be sure that your medical records accurately portray the physical predominance of your disability, if this is the case.

Another common restriction allows for termination of claims unless you can demonstrate the inability to return to any gainful employment after 24 months, as opposed to the inability to do only your previous job. This standard is similar to that used in Social Security Disability claims. This is also a complex area, in which it may become necessary to obtain a vocational assessment to verify continuing disability.

In conclusion, long-term disability insurance is vital. Buy as much as you can afford through your employer if it is offered. Better yet, buy your own private policy through a reputable agent. And don’t overlook applying for Social Security Disability if your policy requires it and/or if you expect to be disabled for at least one year.

What happens, however, if you actually suffer the misfortune of a disability, file a claim, provide all the necessary documentation to the insurance company and then have your claim denied (or terminated)?

If you are covered under an ERISA long-term disability plan (most long-term disability (LTD) claimants have purchased long-term disability insurance through their employers, pursuant to the federal law “ERISA”), you will have to go through an administrative process consisting of an initial determination and an appeal or “review.” You must generally exhaust these administrative remedies before suing. The denial notice allows at least 180 days for requesting review and the company must respond within 45 days, unless there are extraordinary circumstances (allowing them an additional 60 days to determine the matter), or unless you waive the 45-day deadline imposed upon the company by ERISA (something I do routinely to buy more time to develop claims at the administrative level). It is also common that the denial notice will neglect to mention the finality of a subsequent appeal, and will not invite the submission of additional evidence. This is a critical pitfall because, if evidence is not submitted prior to a final determination, that evidence may be excluded from consideration in the federal lawsuit. You generally have three years to bring suit from the date of the review denial, although the policy may reduce this period.

It should be noted that you don’t even get to your LTD claim unless you pass the hurdle of short-term disability benefits (STD). Risk management is so aggressive these days that denials of short-term disability benefits are no longer uncommon. The rules of review of STD denials are usually the same or similar to LTD claim denials.

ERISA does not allow for any punitive damages, and, although in certain circumstances a successful plaintiff may receive an award including attorney fees, those too are generally the responsibility of each party.

No jury trials are available under ERISA. ERISA is federal law, so LTD claims end up in federal district court. A key issue is whether the federal court must perform a “de novo” review of the administrative proceedings, or, in contrast, simply make a determination as to whether the insurance company abused its discretion; in other words, the decision was “arbitrary and capricious.” A “de novo” review is usually far more preferable, as a federal magistrate or judge then has the opportunity to take a fresh look at the evidence and make a determination based on the “preponderance of the evidence.” Winning a case under the “arbitrary and capricious” standard is much more difficult, although, as with all cases, this will depend greatly on the facts particular to the case.

It must be remembered that, even if your claim is allowed, it cannot be taken for granted that your claim will continue to be paid by the insurance company indefinitely. Not only must you and your physician continue to supply “proof of disability” on a regular basis, other potential obstacles may be thrown in your way by the insurance company. Surveillance is common in disability claims: videotape of you going to the supermarket, attending your child’s soccer game, or doing a hundred other everyday routines may be used in an effort to demonstrate that you are not really “disabled.” In my experience, much of the surveillance typically done proves utterly nothing, but insurers don’t seem to mind paying investigators to go on such “fishing expeditions.” Another tactic employs a “rehabilitation nurse” or other insurance company representative to hassle your doctor, therapist, etc., looking for any “evidence” available to also show that you are no longer disabled. “Independent” medical exams and reviews are also frequently used. Suffice to say that the term “independent” is a gross misnomer.

Since both the definition of disability and the limit on payment of claims involving mental impairments typically comes up after two years, that is the point at which a large number of claimants get terminated and seek legal assistance. In the first instance, this occurs because most LTD policies have a change in the definition of disability after two years from being disabled for your occupation to being disabled for any occupation. With the latter, most LTD policies have a two-year limit on payment of claims involving mental impairments, so that in addition to overcoming the hurdle of now having to prove disability for “any occupation,” you now must also prove that the disability is not “mental.” This is not much of a problem where the “mental” is secondary to say, a stroke, but gets thorny in, for example, cardiac claims where there is little new evidence for ischemia and your claim is that stress produces cardiac symptomatology either on exertion or at rest, or where the basis for your claim is chronic fatigue syndrome (which is largely debunked by insurers and considered nothing more than neurosis with secondary somatic complaints).

Disability Insurance: More Important Than Life Insurance? (Part 2 of 3)

While most Americans insure their lives and material assets, like their homes, cars, etc., many overlook the need to protect their most valuable asset — the ability to earn an income.

In my last column, I reviewed individual disability insurance (“D.I.”).
This article will look at group disability insurance policies, commonly referred to as “LTD” policies . First, though, everyone should be familiar with New Jersey’s law, which provides up to six months of disability benefits.

Short-Term Disability (STD) Beneﬁts

Long-Term Disability (LTD) Beneﬁts

Standard Provisions

In my next column, I will discuss the interplay between Social Security Disability and LTD benefits, as well as how to deal with the denial of disability insurance claims.

Disability Insurance: More Important Than Life Insurance? (Part 3 of 3)

If you read my first two columns about disability insurance, you should now have a basic understanding of both the need to protect one’s ability to earn an income and the essential features of disability insurance policies. What happens, however, if you actually suffer the misfortune of a disability, file a claim, provide all the necessary documentation to the insurance company and then have your claim denied (or terminated)?

In fairness to the insurance industry, assuming that your legitimate disability claim has been presented and documented both timely and thoroughly, insurers generally pay and will continue to pay your claim. However, if your claim is unfairly denied or delayed, you should not be intimidated or otherwise deterred from asserting your legal rights.

Rich Frankel

Rich Frankel is the managing partner of Bross & Frankel. He is a member of the New Jersey and Pennsylvania bars. He has focused exclusively on disability and social security benefits since 2005.

Mr. Frankel joined what is now Bross & Frankel after having watched his father struggle with disability, fighting a lengthy illness. Mr. Frankel founded the firm’s veteran’s law practice and substantially grew the social security disability practice, focusing Bross & Frankel’s ability to fight for all of the disability benefits available to his clients.

Mr. Frankel additionally fights for clients in court, obtaining frequent victories in Social Security appeals and against insurance companies in Federal court.