This final chapter of this text consists of two sections, a discussion of Claims and claims procedures, and a Summary Analysis of Disability Income insurance from the viewpoint of consumers – in this illustration, a summary presented to union members by the union is used.
The filing and payment of claims, while rather simple in context, can be a source of difficulties and concern for a professional Disability Income insurance representative if the consumer is not familiar with policy requirements in respect to filing a claim.
Under Disability Income insurance, whether a claim is paid or not depends greatly upon the definition of “disability” in the policy. This has been discussed in detail earlier in the text. Otherwise, the procedures used to file a claim are rather straight-forward and are discussed below.
Companies will vary as to claim filing requirements, but essentially they are all the same. The following procedures are quite typical.
To make a claim under a policy, the following steps must be taken:
1. the insured, his legal representative or the policyowner (if the insured is unable to provide notice) must give Notice of Claim (someone must notify the insurer that disability has started as defined in the policy);
2. the insured, or someone acting in his behalf, and the insured’s attending physician, must complete and return the claim form provided by the insurer;
3. the insured must promptly complete and return any other forms required by the insurer; and
4. the insured must undergo a medical examination or a personal interview as often as the insurer reasonably requests while the claim is pending (this provision was discussed earlier). The insurer always reserves the right to select the examiner but will pay for the examination.
The insurer will then evaluate the claim and either:
1. pay the benefits specified in the policy; or
2. notify the insured and any Loss Payee that benefits are not payable and why they are not payable. If the insurer needs more information, they will notify the insured and any Loss Payee as to what information is needed.
In order for the insurer to pay the benefits, there are some conditions and time limits which both the insured and the insurer must meet.
1. The insurer must be provided with the Notice of Claim within 30 days after the Elimination Period begins, or as soon as reasonably possible.
2. The insurer will furnish claim forms within 15 days after they receive written the Notice of Claim. If the insurer does not receive the forms within 15 days, it is the responsibility of the insurer to send to the insurer, proof of what happened and the extent of the sickness or injury.
3. The claim forms and other information requested by the insurer, i.e., Proof of Loss, must be furnished to the insurer within 90 days after each month for which a benefit is payable. However, failure to furnish such proof within 90 days will not reduce or nullify the claim if proof is furnished as soon as reasonably possible within one year after the 90 days. If the insured is legally unable to notify the insurer, the one-year limit does not apply.
4. The insurer must be given the information which they need to determine if a benefit is payable and for how much. The insurer may require relevant portions of income tax returns for the insured or his business, income statements, vouchers for overhead expenses, and other statements or reports of receipts and payments. The insurer may also require evidence that the Insured was liable for an overhead expense before disability began (for business overhead policies).
The insurer will pay benefits due under the policy in United States dollars. The insurer will not pay any benefit until they have sufficient Proof of Loss. When the insurer has determined that the claim is payable, they will pay according to the Benefits provision. If any amount is accrued and unpaid when the liability of the insurer terminates, they will pay it immediately.
The insurer will pay all benefits to the Loss Payee if living; otherwise the benefits will be paid to the insured. If the insured dies while he is entitled to receive benefits, the insurer will pay any remaining benefit and any unearned premium to the estate of the insured.
Particularly since Disability Income insurance is frequently sold for business purposes, no self-respecting business would take an action affecting their profitability without consulting with their attorney or accountant, or both. The same can be said if a claim is filed with an insurance company on a Disability Income insurance policy. There are disability claim consultants available for the difficult claims, but typically, the representative of the Disability Income insurance company – the agent – can find himself (properly) in the middle of discussions and questions regarding claims between the insured and the insurer. It behooves the professional agent to review claim requirements and procedures involved in the handling of claims, with the consumer prior to claim – preferably at time of policy delivery.
In an article in a magazine that is marketed primarily to attorneys, a list of questions that consumers should ask before they file a disability claim was raised, similar to those shown below. Some of these questions can be, and should be, properly discussed with the consumer.
1. What would happen if the client continue working – would there be a threat of injury to his clientele and co-workers?
2. How long can the client financially and practically be disabled before filing a residual disability claim?
3. Can the client continue in his practice or in an affiliated occupation if he is on disability claim?
4. What would be the best time to sell a practice or business, before or after a claim has been filed?
5. If the client were to sell his business, what could he do before selling to build up its net worth?
6. If the client should become partially disabled, what does he have to do to go on total disability?
7. If he sells his business or his practice and was on total disability benefits, could the client go into his office, and if so, what work could he do?
8. What does “substantial and material” duties,” (or similar wording) in the policy mean exactly? In his case, what would these duties be?
9. Exactly what is his “occupation” and what would an insurance company consider it to be?
10. With the clients occupation, could an insurance company say that he has “dual occupa-tions” and if so, how would they determine that?
11. Under the disability provisions of the policy, what would happen if the client is totally disabled at age 65 or older if he is totally disabled, cannot perform the substantial and material duties of his occupation and is not working at any other occupation?
12. If the insurance company demands that they be given a copy of every page of his office appointment book or similar documentation intended only for internal use, what could he do to preserve confidentiality between the customers and the business, or patient and physician?
13. If the insurance company required him to also submit photocopies of every page of his personal as well as corporate tax returns for the five years prior to disability, regardless if the disability is total or partial, can the insurance company do this, or must he get an attorney at this point.
14. What could the client do if an insurance company investigator came to his home or office and asked him to sign a statement – or is it attorney time?
15. If the insurance company requests that the client submits to an independent medical evaluation, either before claim approval or during a claims period, what could he do, and could he prepare for the examination, and if so how? How does he get a copy of the ex-aminer’s report?
16. If the insurance company requests that he takes a Functional Capacity Evaluation given by a physical therapist of their choosing, does the client have to take this test?
17. If the insurance company approves the claim but the client must provide them with a monthly progress report and statements from any physician that treats him, must the client provide this paperwork? Is there any way that the paperwork could be reduced for the benefit of both the client and the insurer?
18. If the client should go on total disability, exactly what can he with his social life and en-tertainment without jeopardizing his disabled status?
19. How can the client better understand the policy language, such as preexisting conditions, misstatements, and a lot of the other legal insurance language without hiring an attorney (who may not understand them either)?
20. If the client is on claim and the insurance company wants to “buy back” his policy and offers him a lump sump of money, instead of paying disability claims, what should the client do at that time?
There is another factor that arises infrequently, but when it does, it causes problems in client relationships. If the insurance company seems to be unreasonable in paying what would appear to be reasonable, legitimate and substantial disability benefits, what can the client do without jeopardizing any disability benefits the client feels that have legitimately coming to him?
While the numbers of Disability Income insurance carriers are small in relation to, for instance, the number of life insurance companies, it has been recognized that this is a field that is important but “undersold” and still is competitive. Since there are many potential clients for this type of insurance coverage, public impressions of the industry are very important. Regardless of what the public perception of insurers may be, disability income insurance is not highly profitable – particularly in this era of low investment income. Therefore, lowering of premiums in order to be competitive is not an option for many companies, so companies have been particularly attentive to market demands from consumers. Unfortunately, there have been considerable negative news articles and television programs recently produced, which are based upon claimant complaints and concerns.
Some of the more “enlightened” insurers have taken steps to facilitate rapid and professional claims examinations in order to offset the bad publicity the industry as a whole has suffered recently. For the producer, who is on the front line of customer satisfaction, care must be taken as to claims procedures of the various carriers, and to be aware of the advantages and disadvantages of these companies.
Producers should not just explain the basics of Disability Income insurance – how much insurance do they qualify for, when do benefits start and how long do they last – but they should also explain that the client acquires the services of a well-trained and dedicated “cadre” of professionals whose principal concern is to help the insured restore his dignity and potential for economic growth. Many (if not most) insurers now provide medical, health and other professional services whose job is to get the insured back to work on his job.
This “return-to-work” (RTW) philosophy has spread among the companies and expanded within the claims departments. There are several examples of the resources available from the insurers that assists the RTW process.
The insurers can and do provide professional assessments of new claims, and some use the “triage” approach (recognizable to viewers of TV’s ER program) where certain medical resources are assigned to each new claim. If the disability appears to be of a short duration, it is assigned to one such team, and those of longer duration or more severe, would be assigned to other teams and proper assets assigned. This allows the insurer to draw on a range of experts in various medical disciplines.
In the past, a typical claims department would have claim centers arranged geographically, but more recently they are organized around the nature of the disability, similar to the way that hospitals and medical facilities are organized according to specialty. This way claims professionals can provide more extensive knowledge on treatment and rehabilitation needs, depending upon the needs of the impairment. Claimants can rest assured that those handling their claims in the insurance company understand their medical condition and they are aligned with the clinical resources specializing in that condition, whether cancer, cardiac, orthopedic, general medicine or psychiatry.
The insured claimants now can receive the benefit of input from a variety of health care and other professionals that are skilled in helping people return to work after a disability and/or to maintain their independence. This input can come from vocational rehabilitation experts and managers, clinical case managers, psychologists, physicians and financial consultants if needed. This enables the claims department to have a broad prospective that contributes to the “whole person” and is able and willing to consider all ramifications of the insured claimant getting back to work.
Insurers now (at last, some would state) understand the vital importance of communication between the insured claimant, the claimant’s physician and the claimant’s employer in determining a successful outcome to a disability claim and efforts to return the claimant to work, and most importantly, they understand the necessity of this communication early in the claims procedures.
To the surprise of not many, studies show that most employees really do want to get back to work, and this desire is important in returning the employee to work or at least, restoring some normalcy to a life interrupted by a disability. Insurers use the services of vocational rehabilitation professionals in this matter, particularly if they are motivated to return to work.
One tool used by insurers is a “transferable skills analysis” which helps to identify alternative occupations that may be of interest to the claimant, but is definitely an area in which the claimant can use expertise.
CONSUMER APPLICATION
Susan was a pulmonary technician at Doctor’s Hospital when she developed a degenerative spinal condition. She was covered for disability with a Disability Income insurance policy. She filed a claim and the insurer performed a transferable skills analysis which showed that she would be able to perform certain other tasks in line with her education and experience.
Susan was able to obtain a position as an asthma health educator.
Another service provided in this same area is ergonomic assessments, which can help find accommodations at the job site, which can facilitate a return to work.
CONSUMER APPLICATION
Bert was a self-employed consultant who suffered from bone disease and required a hip replacement. He needed assistance in returning to work. The insurance company assessed his situation and the ergonomist recommended a new walking cane, a rolling briefcase, a specially designed chair and an exercise cycle. They also recommended certain changes in the work area so that Bert could still get around. This allowed Bert to return to work while he was recuperating from his replacement.
Other services provided by insurers include assistance in certification for a new job field and job assistance through local employment services.
It is important to remember that in the majority of Disability Income insurance policies, such services are strictly volunteer so they depend upon the desire of the claimant to return to work. Therefore, it usually is advantageous to use these services early in the claim process while the insured still is in the frame of mind that they wish to return to work. Sometimes when the rehabilitation process drags on, the disabled person loses some of their enthusiasm to return to work.
In addition to these claims rehabilitation resources, there are recent innovations in the contract themselves that are quite appealing. For instance, a provision that includes residual benefits that pay (dollar-for-dollar) for loss of earnings for the period of time that the client is working to rebuild so as to return to previous income levels.
Some policies provide that 100% of earnings can be replaced if the disability results in a severe functional or cognitive impairment.
Some policies offer a conversion privilege to Long Term Care insurance coverage at a specified age, which provides benefits to the client even with a diagnosis of diabetes, multiple sclerosis, or other disease that would make him otherwise uninsurable. These benefits are designed to help the insured to maintain their lifestyle without paying down their assets.
There is no doubt that many insurance companies have spent considerable money to staff their claims departments so that claims can be handled more efficiently and effectively. Unfortunately, not all insurers have developed professional claims departments, and in some cases, they have “farmed out” part of the claims process – in some cases most of it – with unintended results.
The following scenario is taken from a claims file that shows what can happen to an unsuspecting insured. The details have been modified so that the insurer and insured cannot be identified.
CONSUMER APPLICATION
Ralph is a very busy and very successful dental surgeon with a thriving practice. He had the foresight to purchase a Disability Income insurance policy right after he first set up practice. As his practice grew, so did his reputation and he worked closely with plastic surgeons, as he was known as a “sculptor,” that could perform miracles.
After about 7 years of building his practice, his hands started “feeling funny” and at times he simply could not hold his surgical instruments with the control that he needed to perform his art. With a matter of 3 months, he started feeling pain in his hands and fingers. He did everything he could think of to compensate, but his hands just did not cooperate.
After taking over-the-counter pain medication for a while, he visited various medical specialists, and the diagnosis varied from carpal tunnel syndrome, to arthritis, to other similar types ( (Continued on next page)
of diseases, including testing for multiple sclerosis (which was negative). None of the prescribed treatments seemed to help very much, and with the knowledge that if he did not do his best and a patient suffered, he could lose his malpractice insurance.
Ralph did the only thing that he could – he walked away from his practice. He took his Disability Income insurance policy from his lockbox and reviewed it carefully. It stated very plainly that if he got sick and could not work, it would pay him for his loss of income. He even took his insurance agent and his wife out to dinner to show them that he appreciated the tenacity that the agent showed when he convinced Ralph to purchase the insurance.
After filing claims forms with the insurance company, Ralph started receiving benefits every month. They did not completely replace his income, but he was able to somewhat maintain his standard of living so that his family did not suffer.
After receiving benefits regularly and on time for a little over three years, he receives a letter from the insurance company notifying him that they will no longer be involved in handling the claim, as they have transferred the claims procedure and payments to a “management” company. The letter stated that the new company would provide the same quality of service that the insurer provided. Ralph had never heard of the management company, but he felt secure and expected his disability benefits to continue.
About 3 months later, Ralph receives a letter from the management company stating that they would like Ralph to be examined by a doctor that they appoint. This is called an “independent medical evaluation,” and at one time, the company had referred to this examination as a “functional capacity test.” Ralph still feels that since he has been disabled for about 4 years, he is safe, but he is curious as to why a new company would spend money for a physical of someone who has been disabled for so long.
Then the ax falls. The examiner send a report to the insurance company stating that Ralph had no “objective symptoms” and when he was examined, the examiner did not find any “tender areas.” Since Ralph could move his neck and shoulders and they felt that since Ralph could move his hands, he was ready to go back to work. In their opinion, Ralph no longer fit the definition of a “disabled person within his area of former expertise.”
Ralph asked for a copy of the report and they refused to send it to him, but he did discover that a copy would be sent to his personal physician if he raised a ruckus about it. His doctor could not believe the report, and immediately sent a scathing letter to the insurance company that stated that he had treated Ralph for many years and Ralph was not able to return to work in any fashion. After all, he knew Ralph’s condition better than anyone else did!
Ralph admitted that his hands felt better than when he was working – why not? He did not submit them to the steady and tedious strain of continual dental surgery.
The management company said that Ralph had to go back to work. Ralph had not had a surgical instrument in his hands for several years. If he attempted surgery, his patients would be at risk – not to say anything about his malpractice insurance.
In desperation, Ralph tried to find something in his field, but no hospital was going to give him privileges and no other dental or medical office could afford to take a chance on his surgery. He did not have the funds available to set up a private practice again. The management company shut off his funds.
Ralph went to an attorney who raised Cain with the insurance company and who brought the Department of Insurance into the act. The insurance company acquiesced to the point to where
they send a company representative to meet with Ralph. The company offered a “buy-out” for Ralph, where they would pay a percentage of the benefits in one lump sum, which would come to about $300,000 – a long ways from the roughly $3 million that Ralph would receive on claim for the years on disability benefits he turns 65. (Continued on next page)
Ralph was between the proverbial rock and a hard place. Without the funds, he could not pay his mortgage and he certainly did not want his family out in the street. Also, with a son in dental school and a daughter ready for Harvard, funds were needed. There seemed to be nothing else to do so Ralph accepted the offer.
When Ralph went to settle with his own attorney, his attorney suggested hiring a claims consultant to see if there is any way that the claim can be reopened. His attorney agreed to work on a contingency, so Ralph contacted a claims consultant and through the efforts of the consultant and his attorney, the case was reopened. Unless the company backs down and offers to start paying benefits (not likely), or makes another offer, this situation could drag on for years.
Rest assured that the greatest majority of claims are paid to the satisfaction of the insureds, most of them promptly and completely. However, Disability Income insurance representatives should be aware of methods used by insurance companies in order to determine whether the claims are legitimate, most of them completely legal and ethical and are performed in order to protect the insurance company from fraudulent claims.
Books have been published, novels have been written and movies and television shows have been produced based on the claims methods of insurers. The use of physicians to perform a physical examination is obviously necessary, as are various tests to determine if the insured could work in another occupation. Obtaining attending physician statements is normal practice for all insurers, big and small. Interviewing neighbors, friends and relatives seem innocuous and can easily be understood if a person claims to be disabled. These methods are performed routinely.
But how about the “private investigator” who sneaks around with a video (previously used movie cameras) camera to take pictures of the insured, hoping to catch him in some physical activity that would belie his claim of being disabled. This is the most well known technique of attempting to prove that a person is or is not disabled – this is the kind of stuff that movies are made of. Sometime, however, this can backfire. In the very well publicized claims case where the insured had a 22-year-old son that resembled his father considerably, a camera caught the son playing basketball in the backyard with some of his friends. This went to court, and when the insured’s attorney called for the claimant’s son to come forward and stand next to his father, there were some red faces in the courtroom.
Or using a CPA to investigate the financial dealings and financial standing of a claimant. While perhaps this does not seem as “sleazy” to some people as following a claimant with a camera, the effects can be just as devastating. No one relishes having his or her financial records thrown open to a stranger without any warning.
Unfortunately, more often that acknowledged, Short-term decisions are made with long-lasting effects. Some insurers are so desperate for profit since the stock market went South, that their principal consideration in all business decisions – and claims is very much a business decision –is the immediate effect on profits.
Another tactic, which would be denied by any insurer as a “tactic,” is to terminate an existing claim, and the best way to do that would be to use an independent medical examination, much as used in the previous Consumer Application. In many cases, examiners seem to have no difficulty in determining that the claimant did not want to go back to work “by choice.” (“By choice” seems to be a rather new term, according to reports from claims consultants and attorneys.) If you think about it, that is difficult to prove either way as it really is a matter of personal consideration and throws the burden of proof to the claimant – and he has to prove what he is thinking?
The company usually would submit a letter of termination at that point, which means that the claimant has only three ways to go:
1. The claimant can “put his tail between his legs,” and accept the decision.
2. The claimant can complain loudly to the insurance company that the termination was not justified. He could also complain to the Department of Insurance.
3. He could hire an attorney, which is what many of these claimants end up doing.
Depending upon what reaction the claimant has to the termination letter; the insurer will determine their next strategy.
If the insurer then decides to pay the claim, they often pay under a “reservation of rights,” which can be defined only as a “scare tactic.” Basically, the company has taken the position that they are paying under protest and they will continue to investigate the claim, and even though they may acknowledge that the claimant is, indeed, disabled, they imply that he is probably disabled only on a partial basis. This does not give a claimant a warm and fuzzy feeling towards the insurer.
One last thing in this respect. Remember the previous discussion of the efforts insurers have made to obtain the services of technical and medical experts in a variety of fields, in order to facilitate the claims and to assist the claimant to return to work? Some claimants and claimant attorneys have considered this as a source of tremendous confusion. As one claim consultant has publicly stated, “ Many insurance companies are bombarding claimants with tremendous paperwork and confusion…some are insulating themselves with quantities of bodies to (keep the claimants) further confused.”
It has been reliably reported that one of the major insurers has its claim department broken down into various classifications, and each classification has 5 or 6, at least, claims persons before one can get to a decision maker. And in the eyes of those who look upon this situation as some sort of devised threat to claimants, they complain bitterly about the number of caseworkers, registered nurses, rehabilitation counselors, CPAs, medical directors, medical consultants, ergonomic consultants, ad infinitum. They maintain that these persons are hired only to reduce claims payments.
Sometimes, it seems, insurance companies can’t win for losing…
The following analysis of Disability Income insurance products closely resembles an analysis provided to a large union by their union headquarters. Such a Consumer Analysis is discussed in part in this final chapter, for two reasons:
(1) It is a good indication of what informed consumers look for in Disability Income insurance, and
(2) it is a good summary of information contained in this text.
Most union plans are either Group or Individual plans, or Association Group Disability Income insurance. This discussion assumes that the union members have opportunities to purchase Group or Individual Disability Income insurance, or they may be able to purchase an Association Group type plan with Short-term disability benefits.
Also note that this discussion is presented in a format similar to that used by a union to inform its members – hence the use of “you,” and “your.”
Myth #1: "I don't need LTD insurance because Social Security will provide me with sufficient income."
Fact: The definition of disability in the Social Security law is a strict one. To be eligible for benefits, a person must be unable to do any kind of substantial gainful work because of a physical or mental impairment (or a combination of impairments), which is expected either: to last at least 12 months, or to end in death. If, because of a medical condition, a person cannot do the work that they performed in the past, then age, education, and past work experience must be considered in determining whether the person can do other work. If the evidence shows that the person can do other work, even if it involves different skills or pays less than their previous work, they cannot be considered disabled for Social Security purposes.
Myth #2: "Workers' Compensation will kick in."
Fact: Workers' compensation will pay only if your disability is job-related.
Myth #3: "My state retirement disability benefits will cover me."
Fact: If you qualify; however, benefits (such as Social Security) are becoming difficult to qualify for in some states.
Myth #4: "My sick leave will cover me."
Fact: Sick leave and sick leave bank accumulations {Note: a method used by unions for reserving for sick leave] for employees who have not used sick days and have been employed for many years may be adequate for Short-term disabilities, lasting less than a year or two. However, sick leave bank managers will tighten requirements to qualify for these benefits or add restrictions and limits, particularly if the bank has a drop in sick day deposits.
Myth #5: "Disability Income insurance is too expensive."
Fact: That may depend on the type of policy you buy, your health at the time of application, the amount of coverage you need, the waiting period before benefits begin, the requirements to qualify for benefits and the length of the benefit period.
According to the Health Insurance Association of America, LTD plans generally do not replace more than 80 percent of the pre-disability earnings. Both premiums and benefits of disability income protection insurance vary depending on risk factors such as age, gender, health history and physical condition, income, and occupational/job duties.
Sources of disability income protection vary considerably in both benefit levels and definitions of coverage. Five factors affect the levels and coverage. They include elimination period, benefit period, monthly indemnity, total disability, and other income resources.
The elimination period on disability income insurance can be compared to the deductible on an automobile or major medical expense insurance policy. It is an initial period of time during which the disabled insured is not eligible to receive benefits even though a sickness or injury prevents the individual from working. When there is a choice of elimination periods, you should consider two critical factors when making your decision. The first factor is how long you can maintain an acceptable standard of living through sick day benefits, personal savings, or investments, without an earned income. The second is how much you can afford to spend for the insurance coverage. The shorter the elimination period, the more expensive the cost of the disability income insurance.
An important point to consider is recurring disability. Check to see if you have to go through another elimination period before collecting benefits should you suffer a remission in a chronic condition and want to return to work. Most insurers would allow between 90 days of returning to work before a disabling relapse would require a new elimination period.
The benefit period is the maximum period of time over which benefits will be paid for a single period of disability. The benefit period can be as short as 13 weeks or as long as a person's lifetime. The longer the benefit period, the higher the cost of the coverage will be because the potential liability to the insurer increases. Keep in mind, however, that, if you are close to retirement, you may only need a one- or two-year benefit plan. Therefore, having options for a one or two year plan may be important to protect against Short-term risks in your financial plan. Benefit period choices may vary for different occupations based on a number of factors (i.e. physical requirements, stability, and the greater risk presented by some occupation groups).
During periods of disability, the benefit paid to you is called the monthly indemnity. It represents a set dollar amount per month that will be paid as long as you are totally disabled under the policy definition and the benefit period has not been exhausted. The amount of the monthly indemnity is set at the date of policy issue and is based on the insured's earned income. The benefit commonly ranges from 30 percent to 80 percent of that income. As with elimination period choice and benefit period choice, the amount of monthly indemnity greatly impacts the cost of disability income insurance coverage. The higher the amount of monthly indemnity, the greater will be the cost of the insurance.
Two definitions are normally used to describe total disability: "Own Occupation" and "Any Occupation." The Own Occupation pertains to a person who is unable to perform each duty of his or her own occupation on a full-time basis. For example, if the person is a painter and their disability limits their accessibility to a ladder, then the individual would be able to collect benefits under the policy. The Any Occupation definition, which is stricter, indicates that benefits will only be paid if the individual is unable to perform each of the material duties of any gainful operation. If the painter had a disability policy that defined disability as Any Occupation, then the painter would probably be able to find other gainful work, such as working in a retail paint store. Most employer-provided or individual income protection insurance policies define disability under the Own Occupation definition for the first two years of disability. After that, the definition changes to Any Occupation. To be considered disabled by Social Security, the Any Occupation definition applies on the first day of disability.
Other Income Benefits (Benefit Integration). While disabled, an insured may be eligible for benefits from other sources. Benefits payable under the LTD plan may be offset (reduced) by other sources of disability income such as Social Security, workers compensation, or disability benefits received from other employer-sponsored plans.
Be wary of scheduled or limited benefits based on the type of disability you incur. For example, some low-cost policies only offer benefits if your disability is due to certain kinds of accidents. Since the overwhelming cause of disability is sickness, make sure your policy covers both accidents and sicknesses. Some policies may only pay a benefit if you incur an operation related to an accident.
How the insurer defines a pre-existing condition and what benefits, if any, are payable for such conditions are additional ways for the insurer to limit benefits. For example, if you know you have a preexisting condition, the insurer has ways for determining when you first sought treatment for that condition, so don't lie on your application is very important. If a policy defines such condition as ever having treatment for it, then that would be a policy to avoid. Most likely, a pre-existing condition is one for which you took prescriptions, or sought treatment, medical advice within six months of policy effective date. Some policies define it as pre-existing if the condition manifested itself prior to the effective date or by a certain number of months prior to the effective date. In such case, it would be prudent to have the insurance company put in writing a definition of "manifested" since its vagueness may limit your right to benefits. Some policies may extend the meaning of "pre-existing" to other conditions exacerbated by the original pre-existing condition.
Once a pre-existing condition is defined, when it is covered may be crucial. Some policies require waiting a year or more before the condition is eligible for benefits. There may be a requirement to go treatment-free for some period of time during which no medical advice is sought. Some policies may never cover a pre-existing condition, usually by a "waiver clause" which waives benefits for that condition. Others may limit benefits to a low dollar amount or benefit period or both.
The greater the number of policy exclusions, the fewer benefits will be paid. Most policies will exclude intentionally self-inflicted injuries; war, insurrection or rebellion, or acts of such events; participation in a riot or civil commotion except while acting lawfully; and an accident or sickness contracted while in the armed forces of any country. Other policies may exclude or limit mental or nervous disorders, alcoholism and/or drug abuse. Some insurers will pay for such conditions only for a limited period such as one or two years and only if institutionalized, while others may pay for such conditions for one or two years and thereafter only if institutionalized. Most group plans must cover pregnancy complications as any other illness, but some individual plans may exclude such conditions.
There are several additional features that are important in an income protection policy. Four of these features are return to work, rehabilitative employment, survivor income, and waiver of premiums:
Determine if the policy encourages you to return to work. In most cases, if a disabled person returns to some type of work, but suffers a loss of income due to part-time employment or downgrade in position, then a lower amount of pre-disability salary would be paid. The percentage of loss of more than 20 percent of pre-disability salary would result in payment of partial disability benefits equal to the same percentage of the regular monthly benefit as the percentage of lost income.
Sometimes benefits are payable if you engage in company-approved rehabilitative raining or work while disabled. Typically, the total income received during this rehabilitative period cannot exceed your pre-disability annual compensation.
Some insurance plans will pay either a lump sum or a continuing monthly benefit, to a named beneficiary if the insured dies after being disabled for a period of time. While this is similar to a life insurance death benefit, it may be restricted to accident disabilities or to some period of time while you were receiving disability benefits. It is usually a lump sum payment equal to a limited number of monthly benefits.
Since it is important for you to minimize your expenses when you become disabled, determine under what conditions premiums are waived. Waiver of premium normally requires you to be disabled for a certain number of months (e.g., 3 or 6 months), or be receiving benefits for some period of time before waiver of premium is effective. If you are covered by an employer group plan, having your premiums deducted from your income, what might happen to your premiums if you become disabled? While you are disabled, you might not be receiving income. Therefore, make arrangements directly with the insurer to continue paying your premiums on your own. Otherwise, your policy might lapse due to non-payment of premiums before any waiver, if present in your policy, is ever activated.
There are two general types of policies, those purchased on a group basis, from your employer or through a membership organization, like your union, and individual policies you purchase from agents who represent one or more insurance companies.
Group policies provided by an employer on a non-contributory basis are the least costly since "non-contributory" means the employer is paying all premiums. In a union environment, this type of policy is usually negotiated. Contributory (meaning the insured employee contributes at least a portion of the premium) group LTD plans may be the next least costly alternative for buying LTD protection. However, acceptance by the insurer of unhealthy, actively-at-work employees is guaranteed in a non-contributory plan and very liberal in the contributory group LTD plan where the employer is contributing a portion of the premium.
Voluntarily purchased, association group LTD plans are less liberal in their underwriting requirements for accepting a particular risk than the group plans described in the previous paragraph. They may also provide a greater level of benefit flexibility since normally the member pays the full cost of the insurance.
The least liberal underwriting of LTD plans are those purchased on an individual policy basis. While it is more difficult to be accepted by individual LTD insurers, insurer premiums for healthy applicants may be very competitive with the group plan premiums and the coverage can be superior to such group plans. The most important things to look for when determining the superiority of coverage in any LTD plan is, under what conditions will benefits not be paid. For example, under most employer and association group plans, payments from the insurer will often be reduced or offset by part or all of the benefits received from Social Security, Workers' Compensation, state disability benefits, sick leave and any other wage continuation plans available to the insured employee. Individual plans may or may not offset benefits from such sources. However, individual plans typically limit the amount of benefits available so that the replacement income is insufficient for your needs.
An advantage of some individual plans over most group plans is the way that benefits are limited, depending upon the extent of disability. For example, some group plans will only pay a benefit if you are unable to perform all the duties of your occupation. This means that if you are able to perform some of the duties, e.g., answering a telephone, you may not qualify for benefits. Other group plans may state you have to be unable to perform the duties of your own occupation, usually for a limited period of time, such as one or two years; thus, if you are a shop teacher and lose the ability to use your hand to demonstrate how to use tools, you would qualify for benefits, even though you could still talk to your students. However, after the one or two year period of receiving benefits, you only qualify for further benefits if you are unable to perform the duties of any occupation for which you are fitted by training, education or experience. The best individual policies require only that your disability caused you a loss of pre-disability income and will pay a benefit to replace that loss, up to the limits of issued amount of coverage.
Some individual policies offer additional benefits such as the right to purchase additional coverage on a guaranteed issue basis some time in the future. Another popular benefit in individual policies and usually not found in group policies is an inflation rider that increases benefits while one is on a claim to match increases in Consumer Price Index, or some set amount, like 5 percent simple or compound interest.
Employer group policies can be terminated if you leave employment, when you retire or reach age 70, if your employer terminates the group policy or if your employer fails to the premium. Such policies typically offer no conversion right to an individual policy. Trade association group policies usually require continued membership but also require that you be employed, sometimes in the field of the trade representing by your association or union. Individual policies are usually "guaranteed renewable," usually to some age, such as 60, 65, or 70. However, the insured retains the right to raise premiums in a state, but only if the premiums of all such policies in that state are raised at the same time, subject to approval by the state insurance department. Some individual policies designated as "noncancellable" can further restrict an insurer's right to change premiums at all. However, as insurance company losses have mounted for such noncancellable policies, the availability of such coverage has been drying up and underwriting requirements have become much stricter. Avoid, if possible, policies which are "conditionally renewable" since one of those conditions may leave you without coverage at a crucial time.
(Disability Income Consumers Guide – NEA member benefits)
STUDY QUESTIONS
1. Under Disability Income insurance, whether a claim is paid or not depends greatly
A. upon the influence of the agent.
B. upon the definition of “disability” in the policy.
C. on whether the insured has a history of paying his premiums on time.
D. upon the state where the insured resides.
2. After a claim has been evaluated, the insurer will either pay the claim or
A. will cancel the policy.
B. will notify the state department of insurance, who will then assign the risk to another company.
D. notify the agent so that he can sell the insured another policy or place the policy with another company.
3. In case of a claim the insurer must be notified (notification of claim)
A. within 30 days after the disability begins.
B. within 30 days after the Elimination Period begins, or as soon as reasonably possible.
C. within 7 days of the beginning of the disability.
D. by the agent, and within a 120 days period of the start of disability.
4. Once a claims notification is received by the insurer,
A. the files goes to the legal department, which has 60 days to approve or disapprove.
B. usually the claims form is discarded and action is taken only after the 2d form is received.
C. the insurer will furnish the claims forms within 15 days of receiving notice of claim.
D. a physical examination is automatically ordered, which is paid for by the insured.
5. In a claims situation, the insurer may require information, but usually NOT
A. a physical examination.
B. relevant portions of income tax returns for the insured or the business.
C. statements or reports of receipts and payments.
D. a copy of the Will of the insured.
6. Under a business Disability Income insurance policy claim, benefits will be paid to
A. the insured in every situation.
B. always to the business only.
C. to the Loss Payee (if living), or otherwise to the insured.
D. to the estate of the insured if the insured is still living.
7. John is receiving benefits from a Disability Income insurance policy. He dies after only receiving benefits for 6 months of the 5-year benefit period.
A. There are no further payments made to anyone.
B. The remaining benefit payments are automatically sent to a District Court for distribution.
C. The remaining benefits due will be paid to the deceased’s estate.
D. The remaining benefits due will be paid only to a charitable institution.
8. If a claimant receives a notice from his disability insurance company that he must have an IME,
A. the insured will be required to have an Independent Medical Evaluation.
B. the insured can ignore the request as his condition is of no business of the company.
C. the insured can sue the insurance company for violation of his privacy.
D. the insured will receive an Insurance Maintenance Explanation, which tells him what he has to do to collect the benefits.
9. Disability insurers have attempted to improve their claims handling by creating certain disciplines within their claims departments, but do NOT create or maintain
A. an assignment of medical resources for claims handling efficiency.
B. input from various health care other professionals.
10. A “Transferable Skills Analysis” is a test that is used by insurers
A. to assist a disabled insured to return to work in some manner or occupation.
B. to prove that a claimant has been malingering.
C. but has not been accepted widely, so will probably not be used in the future.
D. as a method of denying claims without being sued.
ANSWERS TO STUDY QUESTIONS
1B 2C 3B 4C 5D 6C 7C 8A 9D 10A