Changing jobs can be both exciting and overwhelming. If you currently have long-term disability insurance (LTD), then one of the issues you will need to navigate may be your employer change impact on LTD. People who have long-term disability coverage generally do wish to maintain LTD benefits when changing jobs. However, the options for handling long-term disability and new employment in a given situation will depend on a number of factors. Some of these factors could include whether the new employer also offers LTD and what the person changing jobs considers most important in a long-term disability plan. You may find it helpful to evaluate employer change impact on LTD in terms of common changes to LTD benefits when changing jobs, and then considering what your options are for dealing with each one.
Loss of Coverage
One of the most common and frustrating aspects of navigating long-term disability and new employment may be the loss of LTD benefits when changing jobs. Particularly if you have paid a substantial portion of the premiums yourself, having to give up a long-term disability plan you have been used to treating as an investment in your future financial security can feel like a tremendous loss. You may also find that the change induces anxiety, which may be amplified if you are also the primary source of income for your family.
What Is Continuity of Coverage?
Many long-term disability policies do offer options for ensuring continuity of coverage to minimize employer change impact on LTD. Continuity of coverage procedures are designed so that a person leaving one company to immediately begin work with a new employer can transition into their new position without losing their long-term disability insurance.
Converting Policies: Group vs. Individual Plans
These continuity options generally mean converting an existing policy under an employer-sponsored group plan to an individual policy, with no company intermediary. Individual policies tend to have higher premium rates than policies sold under group plans, so be prepared to see a premium increase. The increase may be larger if your employer previously paid a portion of the premium on your behalf, since after the conversion you will assume the full cost.
Continuity Options if You Have a Gap Between Jobs
Some plans also offer short-term interim options for people who are briefly out of work between leaving one job and starting another. These periods are usually short and not all policies offer them, but when available they can be extremely helpful in helping some people navigate long-term disability and new employment. Check your policy and consider consulting an attorney if you are concerned about a possible lapse in coverage as you change jobs.
Converting vs. Enrolling: Long-Term Disability and New Employment
If your new employer offers competitive long-term disability coverage as part of their benefits package, then you may wish to leave your old plan and enroll in the group plan offered by your new employer. Some specific questions that may help guide you toward a wise decision include:
- Does the new employer pay a portion of the LTD premiums?
- What percentage of income does the new employer’s plan offer to replace?
- How long is the exclusion period between enrollment and eligibility?
- How long is the elimination period between becoming disabled and claiming benefits?
- How does the new policy define key terms, such as disability and pre-existing condition?
Another very important factor you will want to consider is whether each plan offers coverage for “own occupation” disability vs. “any occupation” disability.
Coverage for Any Occupation Disability vs. Own Occupation Disability
Any-occupation policies only provide benefits if you are no longer able to work in any occupation. Own-occupation policies provide benefits if you are no longer able to continue working in the occupation you have chosen, and they tend to be more common and more crucial in fields where an individual’s earning potential is closely tied to specialized skills that may not translate easily to other types of work. Changing employers does not necessarily mean changing occupations, so a transition from own-occupation coverage to any-occupation coverage may mean a strongly negative employer change impact on LTD, even if both group plans cover a similar percentage of income.
Reset in Exclusion of Pre-Existing Conditions
Many long-term disability insurance plans, especially group plans through employers, only exclude disabilities resulting from pre-existing conditions from coverage for a defined period of time after the plan starts. This means that if you become disabled after being on the same employer-sponsored long-term disability plan for a long time, you may be able to get LTD benefits even if your disability is caused by a condition that was diagnosed before you started work for the company that sponsors your long-term disability plan.
Understanding the Look-Back Period for Pre-Existing Conditions
If you change employers, then even if the new employer also offers long-term disability insurance as part of their employee benefits package, it is likely that your “look-back” period for pre-existing conditions may be reset. The “look-back” period is a specified period of time before the policy went into effect. When someone submits a long-term disability claim, insurance adjusters “look back” through that person’s medical records from the designated time period to look for evidence of pre-existing conditions. The length of the look-back period will be set out in the terms of the policy, but a duration of 12 months is common.
The Look-Back Period and Policy Conversions
The purpose of the look-back period is to save insurance companies money by giving them a chance to find tests or treatments from before a policy began that they can say prove that someone’s long-term disability claim is actually based on a condition they had before the policy start date. Most plans exclude disabilities based on pre-existing conditions, so if an insurance company can find evidence of your current condition in the look-back period, they will typically deny your claim. If the possibility of claim denial for pre-existing conditions is a major concern for you, then that consideration may weigh in favor of converting your current policy to an individual plan, even if your new employer also offers LTD.
Change in Benefits
If you change jobs, one employer change impact on LTD is likely to be triggered by a change in your income. Long-term disability benefits are typically calculated as a percentage of the policyholder’s former income. For most people, this income will be based on the wages they were earning at the job they had when the policy became active, but the benefits will usually be calculated at the income the policyholder was earning when they left work and submitted their LTD claim, not the income they were earning when they first started.
If you use a conversion option to maintain continuity of coverage during a change of jobs, then your disability benefits if you become disabled at the new job will be calculated on your new income. If your new employer offers their own group LTD plan, one of the factors you may need to consider is how the percentage of income the new plan will replace compares to what you would have suspected under your previous policy. Depending on whether the percentage is higher or lower, you may want to consider planning for additional ways to supplement your income in case you eventually need to claim LTD benefits.
Importance of Income Percentage
If you are able to maintain LTD benefits when changing jobs, then you can expect the percentage of your income the policy will replace if you become disabled to remain the same. Because this is a percentage and not an absolute value, if your income itself changes substantially then so will the amount of the disability benefit for which you are eligible.
Employer Change Impact on LTD: Decrease vs. Increase in Income
There is a widespread expectation that most people will increase their earnings when they change jobs. The assumption often holds true, but there can be a number of reasons why it might not apply in a specific situation. People sometimes take jobs with lower wages to get more flexible schedules or shorter commutes, for instance.
Looking Beyond Wages in Long-Term Disability and New Employment
If your wages decrease as you switch jobs, then one employer change impact on LTD may be that your overall benefits eligibility decreases as well, but it is important to remember that “income” and “wages” are not always the same thing. Some long-term disability group plans may also consider various types of contributions employers make on their employees’ behalf. Retirement matching arrangements are one notable example.
Calculating LTD Benefits When Changing Jobs
Be sure to familiarize yourself with the full range of benefits offered by both employers. Compare each set of benefits with the terms of your policy to see what factors besides wages might impact total disability benefits in your situation. If you are converting your old group plan to an individual one, or negotiating for a transfer to a separate group plan with your new employer, be sure to also compare any differences between the policies regarding the types of employee compensation they consider “income” when calculating benefits.
Points To Keep in Mind Regarding the Impact of Employer Change on LTD Benefits
Balancing long-term disability and new employment can be challenging. If your new employer does not offer LTD, then your employer change impact on LTD may be primarily financial. Evaluate your options for converting your existing policy to a new individual plan vs. selecting a new individual policy not based on your former employment. If your new employer does offer a group LTD plan, then you may see a greater number of changes in your LTD benefits when changing jobs, even if the overall financial impact is likely to be less.
You can set yourself up for success by deciding which changes you most want to avoid, and which changes are acceptable in your situation. If ensuring continuity of coverage to avoid resetting the look-back period for pre-existing conditions is a priority for you, you may be willing to pay a higher premium to convert your existing policy to an individual plan. If your current income depends heavily on your ability to do specialized work, coverage for own occupation disability may outweigh other considerations. Make a careful review of the terms of any policies that may be options for you, and consider discussing your situation with an attorney in your area to get professional perspective as you decide.ds are adequately met during the transition period.
