Long-Term Disability Insurance Policy Provisions – Part I

Your long-term disability (LTD) insurance policy probably reads like most insurance policies, meaning that it is long, confusing and full of industry-specific terms of art that you will have a hard time understanding unless you are a lawyer or insurance professional. In this article, I will explain some of the most important provisions found in most long-term disability policies. Of course, the language in your policy may differ from the standard provisions, so it is always best to consult a disability lawyer if you have questions.

Long-Term Disability Insurance – The “Elimination Period”

Almost all long-term disability insurance policies require you to be disabled for a specified period of time before any benefits will be paid. The amount of time you have to be disabled before you become eligible for your monthly benefit check is known as the “elimination period.” Most often, this period will be around six months. If you bought short term disability insurance in conjunction with your long-term disability insurance, your short term disability policy should pay you during the elimination period.

Your LTD policy will require that you be continuously disabled during the entire elimination period. If you return to work one day before the elimination period runs out, you will likely have to start this period all over again should your condition render you unable to work again in the future.

Long-Term Disability Insurance – Your “Monthly Benefit Amount”

All long-term disability insurance policies of which I am aware pay on a monthly basis (as opposed to short term disability, which is usually paid weekly). The amount of your monthly benefit will be listed in your policy as a percentage of your average monthly wage. The most common amount is 60%. Some insurers allow claimants to buy an additional 10% (making your monthly benefit 70%) for an increased monthly premium. Obviously, you must buy this additional coverage before you become disabled. How your monthly wage is calculated will be defined in your policy, and it may exclude things like overtime and bonuses, even if you receive these on a regular basis. If you work more than one job, but have LTD coverage through only one employer, your monthly wage will include only the money you make from the job that provided the LTD insurance.

Your LTD policy will also likely include a “maximum benefit amount” and a “minimum benefit amount.” The maximum benefit amount places a cap on the total monthly LTD benefit you receive regardless of your monthly wage and benefit percentage. For example, if you made $10,000.00 per month and had a 60% benefit, a maximum monthly benefit amount of $5,000.00 would mean that your monthly LTD benefit is $5,000.00, not the $6,000.00 you would get if there were no maximum.

The minimum monthly benefit is often a pittance, like $100.00 or even $25.00 in some policies. This usually gets triggered in the event you receive some other benefit, like workers compensation or social security disability, which would lower your monthly benefit. I will cover this later in the section on “other income benefits.”

Long-Term Disability Insurance – The “Own Occupation” Period versus the “Any Occupation” Period

Most LTD policies include a definition of “total disability” which changes after a certain number of months after you start receiving benefits. The most common practice with LTD policies is to define “totally disability” during the first 24 months of benefits as “being unable to perform the regular duties of your own occupation.” Your “own occupation” is the type of job you held at the time you became disabled, so if you were an automobile mechanic, you would need to prove that you cannot perform the regular duties of an automobile mechanic during the first 24 months of your disability in order to keep receiving your monthly checks.

After this “own occupation,” or “own occ” period expires, you must then prove that you are disabled from performing “any occupation” in order to continue receiving benefits, which is often a much tougher standard to meet. By “any occupation,” the insurance company means exactly what it says, though you still must be capable of full-time employment. Often, there will be language in the policy which states that you are still considered disabled under the policy if you are not capable of working in any occupation that pays you less than a certain percentage of your previous monthly wage (often 60%). For policies with this type of provision, if you were making $10,000.00 a month in a physically strenuous job, you would still be disable if you can now only maintain a sedentary job that pays $4,000.00 per month. As always, consult a disability lawyer if you don’t know how your insurance policy defines “any occupation.” Sometimes, pieces of the definition are scattered in different places in the policy.

Be aware that some LTD policies are “pure own occ” policies, meaning that they only require proof of disability from your “own occupation” for the length of the policy. This is more likely in policies issued to professionals such as doctors, lawyers and business executives.

This article is continued in Long-Term Disability Insurance Policy Provisions – Part II.