Understanding Cost, Coverage, and Other Differences

The Employee Retirement Income Security Act of 1974, or ERISA, provides several protections related to insurance and retirement plans sponsored by employers for their employees and their beneficiaries. That includes short-term disability insurance, long-term disability insurance, life insurance, accidental death and dismemberment insurance, long-term care insurance, and pensions, if these are offered by a private, non-church-related employer.

However, ERISA-related group insurance is not the only type of protection you can buy concerning potential these types of insurance. You might also purchase individual insurance policies, such as long-term disability insurance, life insurance, accidental death and dismemberment insurance, and long-term care insurance. While your goals in selecting either of these types of insurance are likely similar, there are some differences between the two types of insurance that are important to understand.

What Is ERISA Insurance Coverage?

ERISA insurance coverage is a term that refers to any insurance policy that is governed by ERISA. You have ERISA protections regarding your insurance coverage if they are qualifying policies sponsored by your private, non-church-related employer.

Depending on the benefits structure offered by your employer, you may have employer-provided insurance coverage that you elected and paid for. Your employer might also provide some level of coverage that you do not pay for as part of your employee benefits package.

What Is Individual Insurance Coverage?

Individual insurance coverage refers to a policy that you purchase yourself outside of the sponsorship of your private, non-church-related employer. You may be able to purchase such a plan through the insurance agent you deal with. Alternatively, you can find individual insurance coverage, such as long-term disability insurance, through brokers and online markets, and some credit unions offer an option to purchase these types of plans as a benefit of being a member.

What Are Some Major Differences Between These Two Types of Insurance Coverage?

On the surface, employer-sponsored insurance plans and individual insurance plans appear very similar. They are both meant to provide a certain amount of insurance coverage should you, for example, find yourself disabled long-term due to a covered incident or condition. However, there are differences in these plan types.

The Benefits Offered

In either case, the exact nature of the benefits you receive depends on your insurance policy. However, you may find that you have more flexibility and customization options with individual policies. That is because when an employer sponsors plans as part of its benefits package, it usually selects a few options employees can choose from. With individual plans, you can choose anything in the market.

Another difference in the benefits is how the plans define various coverages. For example, as to disability insurance coverage, some group plans sponsored through employers may initially define a disability as being unable to perform your existing/own occupation. In other cases, these plans may define a disability as being unable to perform “any occupation.” A change to this type of definition can limit a person’s options for claiming benefits. With individual plans, you choose a plan that has a disability definition you like. This allows you to increase the likelihood that you can receive benefits if you are unable to work in your “own occupation,” though you will pay more for this type of plan.

The Cost of Benefits

Typically, individual insurance plans cost you more out of pocket than employer-sponsored group plans do. This is because, in the case of group plans, the employer often covers some or all of the cost of the insurance premiums as part of your benefits package and larger employers may also be able to get discounts on insurance premiums because so many people enroll and there are “volume” discounts.

Relationship to Taxes

In many cases, the amount of premium you pay for an employer-sponsored long-term disability plan is paid out of pre-tax dollars. That means your premium costs reduce your taxable income.

In contrast, you pay for individual long-term disability plans with post-tax dollars. There is generally no tax benefit associated with these premiums or the insurance benefits you receive.

Whether the Plan Is Portable

An employer-sponsored benefit is not always portable, which means you cannot take it with you if you leave your job. Instead, you may need to buy individual insurance at that point or wait until you get another job and qualify for insurance coverage again. On the other hand, individual insurance plans typically are yours to do what you want with as long as you pay the premiums and the company remains in business.

Process for Appealing Denied Claims

The process for dealing with denied claims, bad faith on the part of the insurance company, and other issues are different for employer-sponsored and individual insurance plans. If your employer-sponsored group plan is governed by ERISA, you must follow both plan rules and ERISA regulations in dealing with denied claims or other issues. This typically means going through the administrative appeal process and any other requirements under the plan before you can seek legal recourse in the courts.

As an individual insurance policyholder, you may have more flexibility when it comes to seeking solutions. If your claims are denied and you believe they were denied inappropriately, you may be able to file a lawsuit sooner than you would with an ERISA plan. Of course, you do need to be aware of the details of your policy and contract with the insurance company, as you may have signed an arbitration or mediation agreement that requires you to take certain steps in the face of a dispute.

Legal Help If Your Disability Claims Are Denied

Whether you are dealing with an ERISA insurance issue or fighting bad faith from the insurance company you purchased an individual policy through, you might feel like you are in an impossible situation. Insurance companies tend to be large corporations with big legal teams, and you might feel like the underdog in a fight you have no hope of winning. That is where McKennon Law Group PC comes in. Our experienced team fights aggressively for your rights under ERISA group plans or individual insurance policies, working on your behalf to help ensure claims are paid according to your policy. To get help with your ERISA or individual insurance claim, contact us.