Summary: A Los Angeles disability insurance attorney discusses the differences between long-term disability insurance (typically governed by ERISA) and individual disability insurance plans in California. Contact McKennon Law Group PC today if your long-term or individual disability insurance claim has been denied.

Long-term disability (“LTD”) insurance is a form of private insurance that provides individuals with a financial safety net in the event that they suffer a work-affecting, disabling injury. LTD insurance – as the name implies – covers disabilities that affect a person’s ability to work over a fairly lengthy period of time, typically in the range of three to five years (or more, depending on the details of your insurance plan).

Injured persons in California may be able to qualify for public long-term disability benefits (e.g., Social Security disability benefits or California state disability benefits through the Employment Development Department (EDD)), but it can be difficult to meet the requirements and remain qualified for such benefits over a long period of time. (Indeed, disability benefits paid through the EDD are typically only available for one year.) Most LTD policies will require individuals to file for Social Security and state disability benefits, as they will offset such benefits against their payment to the individual. Workers’ compensation and other income replacement payments will also be offset against the person’s LTD benefits.

Individuals may be able to access LTD insurance through an employee-sponsored plan, though bear in mind that employee-sponsored LTD coverage (which is typically governed by a federal law called ERISA) is still not available to many workers in both California and the United States at-large. Those who do not enjoy the privilege of such access will have to sign up directly for an individual policy.

According to the most recent data from the U.S. Bureau of Labor Statistics, 39 percent of private industry workers participate in short-term disability insurance programs and 33 percent participate in LTD insurance programs. See “Workers with Disability Insurance Plans,” The Economics Daily, U.S. Bureau of Labor Statistics, March, 4, 2015, accessed at: http://www.bls.gov/opub/ted/2015/disability-insurance-plans-for-workers.htm.

When deciding on an LTD insurance policy – whether an individual is choosing from a range of employee-sponsored or individual plans – he or she is likely to encounter a few key differences that can significantly affect one’s coverage.

The following is a short list of such differences.

Benefit Payments and Length of Payment

The amount, type, and distribution of disability benefit payments varies quite significantly between LTD plans.

Effective Coverage Date
Individuals will not be eligible to receive benefits until the effective coverage date has passed. Depending on the plan, the effective coverage date can start as soon as one month (or as late as six months) after the benefit claim application has been submitted. Generally speaking, the sooner an individual’s effective coverage date is, the higher the premium tends to be.

Benefit Payment
When comparing plans, individuals will likely find that some plans have significantly different methods for calculating benefit payments. Whereas some plans will pay out a set value (typically individual disability insurance policies), others will pay out a portion of a person’s total pre-tax employment income (typically LTD insurance policies).

Length of Benefits
Plans vary substantially with regard to how long benefits are paid out, so pay particularly close attention to such terms in the insurance agreement. Some LTD plans will pay out benefits for only two or three years, while others will pay out until retirement age (e.g., 65 years old). As an individual’s injuries may result in a very long-term disability – even lifelong – he or she should carefully consider the benefit payment period of a plan before signing on. The lengthier, the better.

Renewable vs. Non-Cancelable vs. Non-Renewable

Those signing up for an individual LTD insurance plan (as opposed to accessing LTD insurance through an employer-sponsored plan) are encouraged to consider several options: guaranteed renewable, non-renewable and non-cancelable.

Guaranteed Renewable
Guaranteed renewable LTD plans give individuals the option of renewing, but gives the insurance provider the power to raise premiums across the board.

Non-Renewable
Limited renewable or non-renewable LTD plans do not give individuals the option of renewing (or have particularly stringent renewal requirements), but as a result, initial premiums tend to be much lower.

Non-Cancelable
Non-cancelable LTD plans ensure that premiums cannot be raised and that the plan cannot be canceled (assuming that the individual meets the basic requirements for continued coverage). Unfortunately, insurance providers tend to charge higher premiums for non-cancelable policies.

What Constitutes a “Disability” Under Your LTD Plan?

LTD plans can have different interpretations of what constitutes a “disability” such that the policyholder is entitled to benefits. The broader the definition of “disability,” the more likely it is that an individual will qualify for benefits. The benefits may also be somewhat different, depending on the definition.

Some LTD plans define “disability” as the inability to work at a person’s existing job or occupation. This is called an “own occupation” definition of disability. This is a fairly narrow definition that is more favorable to the insured. Under these types of plans, and insured may be able to collect benefits, even if they are working at a different job. For example, if a surgeon has an “own occupation” policy, they would be able to collect benefits if they cannot perform the duties of a surgeon, even if they are able to work as a general practitioner. While sometimes these plans pay out benefits for a limited number of years (i.e., up to five years) if the disability simply prevents the individual from pursuing an existing job or similar jobs, there is typically the option of have the benefits continue until retirement age. If there is a time limitation on the benefits, the policy is intended to give the policyholder enough time to pursue an alternate occupation.

Some LTD plans define “disability” as the inability to work at any job. This is called an “any occupation” definition of disability. This is a broad definition, less favorable to the insured. These plans usually pay out benefits for an indefinite period of time until the plan ends in accordance with the default terms, or until the individual is able to find a different occupation.

Allowance of Part-Time Earnings

Disabilities vary significantly and in many cases, a disability may not result in a total inability to work, but instead may force an individual to work in short bursts. Whereas before the individual may have been capable of working full-time, he or she may only be capable of working part-time after suffering the disability. Certain LTD plans allow individuals to work part-time, but almost all such plans will offset part-time earnings against benefit payments.

Whether an individual is making an ERISA LTD claim under an employer-sponsored LTD plan, or a claim under his or her individual disability insurance plan, the application for disability insurance benefits is very likely to be evaluated by a claim administrator employed by the insurance company, also known as a claims administrator. As such, insurers often deny legitimate claims made under LTD or individual disability insurance policies. To fight the denial of an LTD claim or individual disability insurance claim, it is important that you work with an insurance litigation attorney who has had substantial experience handling denied disability insurance claims.

To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949) 387-9595 for a free consultation or go to our website at mslawllp.com and complete the free consultation form.