Long-term disability (LTD) insurance is a contractual agreement between an insurer and a policyholder that provides income replacement when a medical condition prevents the insured from performing their gainful activity substantially for an extended period. Unlike short-term disability or workers' compensation, this coverage is regulated under specific policy provisions that determine eligibility, benefit period, and a narrow definition of disability to which the claimant would be subject.
The policy becomes the sole point of reference for determining whether benefits should be paid or not. This is regardless of any verbal agreement by the human resources department or the general assumption regarding insurance coverage. Inflexible time limits, specific standards of evidence, and exclusionary terms characterize these papers, which limit the insurer's financial liability.
This blog outlines the key elements of long-term disability policies, with a focus on the legal provisions applicable to California residents when filing a claim for benefits. The most important thing is to know these differences, since the law governing you can dictate not only the benefits you may get. You also need to learn about the legal remedy that you would have in case of a denial.
Understanding Your Long-Term Disability Policy
The long-term disability policy is a binding legal contract that determines all the terms of your financial survival in the event of a medical crisis. The insurance adjuster does not consider your physical pain or your financial needs separately when you file a claim. Instead, they only check the language in your policy documents to see whether the restrictive requirements on payment cover your case.
The first document you must obtain is the Summary Plan Description, in the case of a group plan, or the Declarations Page and Policy Booklet, in the case of private insurance, for most employees in California. These are the long-term disability policy provisions that are the law of your claim, contained in these documents.
You should approach your policy with the understanding that insurance companies are profit-driven organizations that strictly adhere to these written terms. The insurance adjuster is trained to spot specific clauses that can enable them to deny or cancel coverage.
It is hardly enough to use a note from a doctor that only states that you are disabled. It is essential to understand precisely what your particular contract requires of you. By becoming conversant with the LTD insurance coverage in California, you put yourself in a position where the power balance does not lie with the insurer but with you, as you are now capable of building a claim that satisfies all the contractual demands that would qualify as acceptable.
How Your Policy Defines Disability
Per disability law, there are two primary definitions you must distinguish between:
- "Own occupation"
- "Any occupation"
Your ability to receive benefits hinges entirely on which of these definitions applies to your claim at any given time.
"Own Occupation"
The best protection for professionals and skilled trades people is an occupation policy. Under this definition, you are disabled when you cannot carry out the material and substantial duties of the particular job at the time that you become disabled. For example, if you are a surgeon and have a tremor in your hand, an Own Occupation policy would cover the benefits since you can no longer practice despite being physically fit to teach medicine or be engaged in another field. This coverage acknowledges that you have considered your specific career and income level, rather than your overall ability to work.
"Any Occupation"
Under any occupation standard, you are considered disabled when you cannot perform the duties of any job to which your education, training, and experience reasonably apply. If the same surgeon is a hospital administrator or a medical consultant, they would not be entitled to benefits under an Any Occupation clause.
The insurer will do a transferable skills analysis to determine other occupations in the economy that you would be theoretically able to do, without much regard to whether the jobs are available or whether they attract a similar amount of wages.
One of the pitfalls of a long-term group disability policy is the 24-month change in definition. Employer-sponsored plans typically cover you for the first two years of disability under the "Own Occupation" standard. However, at exactly 24 months, the language is automatically transferred to the hostile standard of Any Occupation.
This is the point of transition where a vast number of claims are prevented. You could have been rightfully compensated for two years due to the inability to do your particular job. However, after 24 months, the insurer may claim that you can perform a sedentary job, such as a customer service representative or a parking lot attendant, and will cease to pay you. This is a timeline that you have to be painfully conscious of to prepare medical and vocational evidence that would demonstrate that you are still disabled even by the more restrictive definition.
The Impact of "Elimination Periods" on Your Claim
You must meet the policy's elimination period before you can receive any benefit payments. This is a waiting period that acts as a deductible, but in terms of time, rather than dollars. In most long-term disability policies, the elimination period typically ranges from 90 to 180 days.
Still, there are individual policies that have shorter or longer elimination periods, depending on the amount of premium paid. You will continue to be disabled as per the policy definition, but you will not receive any benefits from the LTD carrier at this time.
The long-term disability elimination period ensures that you have a long-term condition, not a temporary illness that can be cured within a short period. This is typically the time when Short-Term Disability (STD) benefits, or California State Disability Insurance (SDI) payments, become available.
When you return to work a few times during the elimination period and then leave again, certain policies may cause the clock to be reset, requiring you to start a new waiting period from the beginning. The important thing is to read the clauses in your policy that refer to the accumulation period, which determines how long you can attempt to return to work without losing the gains you have made towards the elimination period.
This is a gap that you need to plan your finances to fill, because even though the elimination period has technically ended, the first LTD check will take weeks to process.
Financial Provisions Like Offsets and Taxability
Among the most outrageous revelations for first-time claimants is that their long-term disability benefit is rarely 60 percent of their salary, which they had hoped to receive. This is because of the benefits integration provisions, which are usually referred to as offsets.
Your LTD policy likely designates the LTD insurer as a secondary payer. This is to imply that the insurance company is entitled to deduct other income sources that you get due to your disability from the amount they pay you. The most prevalent offset is the Social Security Disability Insurance (SSDI).
When your policy pays you $3,000 a month, but you are entitled to receive $1,500 a month in SSDI, the insurance company will lower its payment to $1,500. You do not get the two in full, and what you are allowed to get is still limited to the original policy amount.
This forms a complicated game in which the insurance company will push you firmly to claim SSDI benefits, and in many cases, it may employ a third-party vendor to process that claim on your behalf. They do so to minimize their financial responsibility. Also, in case you get a lump sum back payment of Social Security, which is retroactive.
The LTD policy has a clause that you must refund the overpayment that the insurance company made to you during the months you were waiting for the SSDI award. Lack of knowledge of this Social Security disability offset may translate into a great deal of financial hardship if you use the lump sum but fail to pay off the insurer.
It is also essential to consider whether the money is taxable, as that affects the actual value of your benefit. The disability benefits received as long-term benefits are subject to taxation, depending on the payer of the premiums. When you buy a single policy using your own after-tax money, then the benefits that you get are usually tax-free.
This would add a 60 percent benefit to your pocket at a rate that would be close to your take-home pay. Nevertheless, a majority of the employees are under group plans whereby the employer pays the premiums in pre-tax dollars.
In this case, the IRS considers your disability benefits as regular income, and therefore, you must pay federal and state income taxes on each check. This has the potential of making your real disposable income much lower than you had expected, and it is vital to budget under these circumstances.
Common Exclusions and Limitations Clauses
Insurers cushion their profits by incorporating certain exceptions and restrictions within the policy that limit or prohibit coverage under specific conditions.
The Pre-Existing Condition Exclusion
In this provision, there is usually a look-back period, which is usually six months right before the actual date your coverage becomes effective. In case you were treated, took medication, or even visited a provider to treat a condition during that look-back period and subsequently made a claim on the same condition within the initial 12 months of coverage, the claim will be refused. To establish whether this exclusion presents a risk to your claim, you need to check your medical history against the effective date of your policy to see whether this exclusion is relevant to your claim.
The Restriction On Mental And Nervous Conditions
The majority of group policies restrict benefits for disabilities that result from mental health disorders, for example, depression, anxiety, and burnout, to a 24-month lifetime maximum. Whereas physical disabilities are paid up to the retirement age, mental health claims are randomly limited, irrespective of the severity of the illness.
Specific policies have exceptions in relation to particular organic brain disorders, including schizophrenia, dementia, or brain injury with structural damage that has been proven. When you have a physical and mental disability, the insurance companies will always attempt to classify it as a mental one so that they can use the 24-month restriction. To avoid this cap, you need to offer objective medical evidence that a physical condition is the primary cause of your disability.
The Subjective Symptoms Or Self-Reported Conditions
Some up-to-date policies contain restrictions on the subjective symptoms or self-reported conditions. Such provisions limit the reimbursement to conditions that cannot be confirmed through objective tests, such as MRIs or blood tests. Such disorders as fibromyalgia, chronic fatigue syndrome, and some forms of chronic pain tend to be classified in this category.
Should there be a self-reported limitation on symptoms in your policy, which is usually limited to no more than two years, you will have a difficult time convincing yourself that you are still disabled without any hard-copy diagnostic documentation to back it up. You should collaborate with your doctors to record objective indicators of your disease, like weakness of motion or muscle atrophy, instead of just taking note of pain.
Group (ERISA) vs. Individual Plans in California
Legal provisions concerning your policy vary greatly when it comes to a group plan at your workplace or one of your individual policies. This is what determines your legal strategy. The majority of employer-sponsored plans are regulated by the federal Employee Retirement Income Security Act (ERISA).
Whereas the initial intention of ERISA was to cushion pensions, in the context of disability insurance, it forms a barrier to insurance firms. The law of ERISA disability in California does not permit a bad-faith damages award and does not permit a jury trial. Even before you can file a lawsuit, you are required to undergo a mandatory administrative process of appeal with the insurance company in case your claim is denied.
When you appeal to federal court, the judge can typically only review the administrative record, which consists of the documents you provided at the time of the appeal. This implies that you cannot add new evidence to the court; hence, the appeal section is the most essential part of your case.
However, in contrast, individual disability policies purchased directly through an agent fall under the jurisdiction of California state insurance laws. The policies provide extensive consumer protection. If the insurer refuses to pay a claim on an individual policy unreasonably, you can sue on a breach of contract and possibly on bad faith, which would result in the recovery of punitive damages as well as emotional distress.
You are also entitled to a jury trial and are not limited to the closed administrative record. This puts you in a much better negotiating position. The first step is to determine the type of policy you have. The governing law must be checked as soon as possible because the time limits and rules of procedure for ERISA plans are strict and do not provide the insurer with any leeway.
Find a Disability Lawyer Near Me
Your long-term disability policy was designed to protect your financial future, but the insurance company often treats it as a checklist for denial. If you are having a hard time interpreting the Own Occupation clause, have been abruptly cut off from benefits at the 24-month mark, or are being aggressively offset on Social Security, you should not navigate these complex legal documents alone. The insurance company has lawyers and adjusters who are committed to interpreting your policy in their favor. Therefore, you need a legal team that is committed to defending yours.
At Leland Law, we hold disability insurance companies accountable for the promises they make. We help clients in California learn about their rights, navigate ERISA regulations, and secure the income replacement necessary to maintain their standard of living. Call us now at 866-449-6476 to have your claim thoroughly reviewed.
