Long-term disability insurance (LTD) replaces a portion of your pre-disability income if you are sick or injured and unable to work. Behind this deceptively simple definition, however, are a host of technicalities that can complicate your process for selecting a good LTD plan to meet your needs. Avoiding pitfalls LTD policy selection presents can sometimes feel like threading a treacherously narrow obstacle course, and it is not unusual for individuals to get frustrated as they try to navigate around the common mistakes choosing long-term disability insurance can tempt even a very cautious person into making. As numerous and potentially devastating as long-term disability policy pitfalls may be, you may still find it encouraging to recognize that the strategy for avoiding them is simple, even if the process is complex: Familiarize yourself with insurance principles and industry terms, so that you can ask good questions, and seek professional advice once you have selected some policies to choose from, and as often as needed.
Avoiding Pitfalls: LTD Policy Selection Research
Many of the most common mistakes choosing long-term disability insurance reveals are based on lack of information, inaccurate information, or misinterpretation of the available information. If you are focused on avoiding pitfalls LTD policy selection can open up, one of the most important things you can do is make sure you completely understand the details of every policy you are considering. Often it can be helpful to go beyond a review of the terms themselves and discuss your top three or four choices with an experienced disability attorney. If you choose to have that conversation, topics you may want to ask about include:
- Offset provisions for other income sources: What activates them, what will your documentation obligations be, and are there any significant differences in the offset requirements between the policies you are considering? Answering these questions now can give you a clearer and more accurate picture of what your benefits might ultimately look like, if you ever need coverage.
- History and reputation of the insurer: This is information you will not be able to glean from the policy, although how the terms are structured can sometimes provide clues to a company’s approach. An attorney who has handled cases in this area may have useful knowledge to share about which insurance companies have a strong reputation for professionalism vs. frustration in handling claims.
- Definition of disability: What seems straightforward to the average person may contain ambiguities that can be exploited legally. Since the insurance company is writing the policy, their own lawyers are in an excellent position to draft policy terms whose nuances work to their advantage. Reviewing and comparing the definitions of disability given in each policy with an experienced attorney can put you in a stronger position to understand what you will need to prove to the insurance company if you ever need benefits.
- Exclusions and limitations: The summary plan documents often presented as shorthand guides to policy details can have a way of making exclusions and limitations look like rare exceptions you are unlikely to experience. Whether this framing is intentional or not, it can lead to confusion if you only parse the language carefully when the time comes to file a claim for benefits. Attorneys practicing in disability law will often be able to bring the benefit of their experience to bear in interpreting the “long version” of policy exclusions and limitations.
Most people who choose their own long-term disability policies have the cost of premiums at the forefront of their minds from early in the process. One way you may want to think about these premium costs is by balancing the value of those premium payments over time against the amount and duration of benefit payments guaranteed under each policy you are considering. How many years’ worth of premiums would you need to save to grow a hardship fund equivalent to the possible LTD payments? How long would the benefit payments need to last in order to provide a stronger financial safety net than putting the amount you save on premiums each month into savings?
Tips for Selecting a Good LTD Plan: Understand Common Terms
Avoiding pitfalls LTD policy selection can present starts with familiarizing yourself with the terminology commonly used in long-term disability insurance policies. Much of this technical vocabulary appears in many of the online guides to disability insurance as well. As with any other specialized field, disability insurance has its own jargon. In this case, however, the “jargon” can often be especially confusing because it often involves repurposing familiar words, like “work” or “disability,” to carry policy-specific meanings. Even a very brief overview of how this system functions can make it significantly easier to navigate.
Common Mistakes: Choosing Long-Term Disability Insurance Without Checking the Benefit Period
The benefit period for a long-term disability insurance policy is the length of time over which benefit payments will be made once an individual’s application for benefits has been approved. This timespan is also sometimes called the duration of benefits.
One of the most common and frustrating long-term disability policy pitfalls is assuming that the benefit period will apply across all conditions covered by the policy. Another is neglecting to check whether the benefit amounts will remain the same throughout the entire benefit period. In fact, it is very common for benefit periods to be limited for specific conditions. Strict time limits for mental illness and addiction recovery tend to be on the leading edge here, but a policy can theoretically establish limits on the benefit period for any covered condition, as long as the limits are specified in the policy terms.
Avoiding Pitfalls: LTD Policy Selection and Elimination Periods
The elimination period is also known as the “waiting” period, but this second term can sometimes be confusing because the entire long-term disability insurance process, from choosing a policy to getting approved for benefits, may involve quite a few periods that are characterized primarily by waiting. The elimination period is specifically the period an individual must wait after becoming disabled and before becoming eligible for LTD benefits under the terms of the policy. Shorter elimination periods generally correlate to faster eligibility for benefits, and can mean shorter gaps in income.
The elimination period can easily be confused with the exclusion period, which is the length of time an individual must wait after enrolling in the policy before he or she will be eligible to file a claim. Unless you have the misfortune to become disabled very soon after taking out a long-term disability insurance policy, the exclusion period and the elimination period are likely to be several years apart. Regardless of whether the exclusion period is a distant memory by the time the elimination period begins, policies generally count their elimination periods from the date you become disabled, not from the date you file your claim. In avoiding pitfalls LTD policy selection concerns, you may find it helpful to compare the elimination periods of different policies.
Common Mistakes: Choosing Long-Term Disability Insurance for Any Occupation vs. Own Occupation Coverage
Own occupation and any occupation are two types of LTD policies, but they are also two distinct ways of conceptualizing disability itself. Each policy will have its own precisely worded definition of disability, but own occupation LTD policies define disability in terms of an individual’s ability to continue doing, or return to doing, the job he or she was working in prior to becoming disabled. By contrast, any occupation policies define disability in terms of the individual’s inability to work in any job, without regard to what the individual’s pre-disability career path looked like.
There are subcategories within each of these two groups, and nuances in the terms of individual policies. For the purposes of illustration: If a spinal surgeon develops a hand tremor, he or she will likely be unable to continue working as a spinal surgeon, since that specific job requires not just medical knowledge, but also exceptionally steady hands. A fairly generous own occupation policy tailored to account for work in specialized fields might consider this spinal surgeon disabled, and therefore eligible for benefits. An own occupation policy with a somewhat broader angle on what “own” occupation meant might not consider that individual to be disabled, since he or she could in all likelihood continue practicing medicine in another capacity. An any occupation policy would almost certainly not consider the individual disabled, because there are numerous jobs for which a hand tremor will not exclude an individual from employment, even though he or she may have to request workplace accommodations under the Americans with Disabilities Act (ADA).
Avoiding Pitfalls: LTD Policy Selection and Offset Provisions
Most long-term disability insurance policies contain offset provisions. These provisions usually require you to provide the insurance company with information about your other sources of income, mostly notably approval for Social Security Disability Insurance (SSDI) benefits and, along the same lines, any workers’ compensation disability payments you may be receiving. The “offset” part usually means that the disability insurance company will subtract the income you are receiving from these other sources from your monthly LTD benefits.
If your long-term disability policy is designed to replace 70% of your pre-disability income, and a combination of workers’ compensation disability and SSDI benefits together cover 65% of your pre-disability income, then in most cases offset provisions will mean that the long-term disability insurance only pays enough in benefits to close that gap, equivalent to 5% of your pre-disability income. Another way of looking at the offset provision conundrum is that LTD is technically long-term disability income insurance, and a long-term disability income insurance policy guarantees your income up to a certain percentage of your pre-disability earnings. That percentage is the maximum your income is insured for, and a long-term disability policy may provide less or more in benefit payments as needed to fulfill that guarantee. Since offset provisions make it very difficult to “stack” additional income sources, often one of the most important long-term disability policy pitfalls to avoid is neglecting to account for offset provisions in considering the percentage of your income a policy will replace.
Common Mistakes: Choosing Long-Term Disability Insurance Without Reviewing Partial or Residual Benefits
Partial and residual benefits are very similar to offset provisions in some respects. In fact, you may even hear residual benefits referred to as work offsets in some instances. These terms are used in describing how long-term disability policies adjust benefit payment amounts in response to changes in an eligible individual’s working ability, when that working ability is below the threshold that would trigger a termination of benefits under the terms of the policy. Some policies may not allow individuals to qualify for disability benefits if they are able to work at all, even in a part-time capacity. These policies will generally not provide partial or residual benefits.
Other policies may provide benefits when individuals are still able to work part-time, but due to their condition they have had to “scale back” their working hours or work responsibilities in a way that has caused a significant drop in their income. In these cases, an LTD policy might provide residual benefits to a policyholder with partial disability to close the gap between the amount the individual is currently earning and the percentage of their pre-disability income that is guaranteed by the policy. With some conditions, the decline in working ability can be so gradual that it causes confusion about the point from which “pre-disability” income should be calculated; understanding the timeframe a policy will use for this determination is critical.
Avoiding Pitfalls: LTD Policy Selection Questions and Concerns
Avoiding even the most common mistakes choosing long-term disability insurance presents can be difficult. However, many of the most effective tips for selecting a good LTD plan are less directed at what you personally should choose, and more focused on how to find out what you need to know about LTD policies in order to make the decision that is right for your needs. Avoiding pitfalls in LTD policy selection is often a matter of familiarizing yourself with the core concepts in long-term disability insurance, and the industry-specific language insurance companies use in their policy terms. Even a thorough understanding of the essentials can still leave you vulnerable to misinterpretations of insurance policy technicalities, so you may find it valuable to go through your own key concerns and the policies you are considering with an attorney who has experience in handling disability insurance cases.
