The evaluation and purchase of long term disability insurance is more complex than most insurance companies and agents will tell you. Policy language can be confusing and contradictory and the coverage itself varies substantially from one contract to another. An insured who has not paid close attention at the time he or she purchased the insurance, may seriously regret that fact later on.
Own-occupation disability insurance is, of course, designed to pay benefits if, as a result of an injury or illness, the insured becomes unable to perform the important duties of his/her own occupation.
Under the laws of most jurisdictions, that means the claimant has become unable to perform their occupational duties “in the usual and customary manner and with reasonable continuity.”
The most common disabilities experienced by medical professionals include back, neck, arm and wrist injuries, psychiatric impairments, diabetes, fibromyalgia and cardiac-related problems. A surgeon who can no longer perform the lengthy or complex procedures previously performed would be considered disabled even though he or she is still able to perform all other aspects of their practice including other, less difficult, surgeries. This is so regardless of the amount of the insureds continuing income.
In evaluating and purchasing a disability policy here are some important rules to follow:
1. Do not – EVER – purchase an ERISA governed policy. Not on behalf of yourself, and not on behalf of your employees. ERISA is a federal law that preempts (eliminates) all of the insureds rights under state unfair claims practice laws. Since state laws are an insured’s only protection against an insurance company’s unfair or fraudulent claims practices, the elimination of those protections destroys all of your rights and eliminates any leverage an insured might otherwise have to prevent an insurer from denying or underpaying (lowballing) a valid claim. Avoiding purchasing an ERISA governed policy is the single most important rule in purchasing disability insurance. If a policy you are considering purchasing is governed by ERISA, do not buy it. Period.
2. Make sure the insurance agent you are working with acknowledges that the policy you are considering defines TOTAL Disability as the inability to perform the insureds’ important, or substantial and material duties, in the usual and customary manner and with reasonable continuity (i.e on a full time basis). Note that some policies contain conflicting provisions providing that an insured who can perform some, but not all, of his/her important duties is considered RESIDUALLY (Partially) NOT TOTALLY disabled. Residual disability benefits are usually calculated on the basis of a complex formula spelled out in the policy, the bottom line of which adds up to only a fraction of the benefits you think you are purchasing.
3. Buy a policy that provides lifetime benefits, not one that cuts off benefits at age sixty five. You will pay a higher premium for lifetime benefits, but it’s worth it.
4. Make sure the policy contains a COLA (Cost Of Living Adjustment.) that keeps benefits current with inflation. Ask whether the COLA kicks in for every year the policy is in force, or just kicks in after you have filed a claim. If the former type of COLA is available, opt for it.
5. Make sure premium payments are structured so that benefits payable under the coverage are not taxable.
6. Find out what the claims handling track record is of the company whose policy you are considering. This information can usually be obtained from your state insurance department or from lawyers that specialize in representing claimants in insurance bad faith cases.
Make sure the information you get is current. One well known company (Unum) that used to have a poor reputation in this regard has improved its practices very substantially while some of its competitors (such as Prudential and Berkshire) have, in my opinion, actually gone the other way.
7. Give the agent you are working with a copy of this check list and ask him/her for written comments in response. Save those comments, along with any brochures, written materials, correspondence or notes from conversations with company representatives in the file containing your policy.
We are long-term disability lawyers. It is all we do and we may be able to help.