The purpose of long-term disability insurance is to provide workers with steady income in the event their earnings are curtained by a lengthy period of disability. Many employers procure group long-term disability insurance for the benefit of their employees. But some employers are being offered a group disability policy that contains a disturbing clause that allows the insurer to avoid paying benefits for a year or more.
How Long-Term Disability Works
A long-term disability policy typically kicks in after a worker has received 180 days of short-term disability benefits. Disability policies are designed this way so that disabled workers can have a seamless flow of benefits if they can no longer bring home a paycheck and provide for their family.
Long-Term Disability and Society Security Disability
All group long-term disability policies require their beneficiaries to apply for Social Security Disability Insurance. This is because all group long-term disability policies allow the insurance company to reduce the insured’s monthly benefit by the amount the insured and the insured’s dependents receive in the form of Social Security Disability benefits. Typically, insurance companies will require that insureds submit proof that they have applied to the Social Security Administration for Disability and are waiting for a decision. Thereafter, the insurance company will pay an insured his or her full long-term disability benefits while the Social Security Administration decides the insured’s eligibility for Social Security Disability benefits. It can take a year or longer for the Social Security Administration to approve or deny an application. If Social Security Disability benefits are approved, the insurance company will at that point reduce the insured’s monthly benefit by the amount the insured receives from the Social Security Administration.
Horrible New Policy Provision
Some employers are being offered a group disability policy that could result in financial disaster for the insureds it’s supposed to protect. Our office recently reviewed a disturbing group policy offered by First Reliance Standard. It contains a clause allowing the insured’s long-term disability benefit to be reduced by an amount that the insurer “estimates” that the disabled worker may be entitled to get from Social Security.
Say an insured is entitled to $3,500 in long-term disability benefits and First Reliance Standard estimates that the insured may be entitled to $3,400 per month of Social Security Disability benefits. In this scenario, First Reliance Standard is only obligated to pay $100 per month while the insured’s Social Security Disability claim is pending. Again, the Social Security Disability process may take a year or longer.
The Impact
The above example can be financially catastrophic for workers who thought they had a financial safety net in place to provide for a seamless flow of income should they become disabled. Our legal research reveals that the clause that allows First Reliance Standard to avoid its obligation to promptly pay its insureds their full benefit has not yet been challenged in court or by any state insurance commissioner. It will be interesting to see if other insurance companies jump on First Reliance’s profitable bandwagon and amend their policies to reflect this detrimental and profitable provision.
The Takeaway
Insurance companies are always looking for loopholes to limit their liability and protect their bottom line. It is important to read your group long-term disability policy carefully to ensure that you have good and proper coverage in the event you become disabled.
If you have any questions about your long-term disability insurance coverage or are involved in a dispute with your long-term disability insurance company, contact us. We have the expertise, experience and tenacity to make insurance companies keep their promises to policyholders like you.
