Understanding Your Long-Term Disability Policy

There are a few key areas of your LTD policy that you need to read and understand.

By , J.D. · University of Missouri School of Law

If you're covered by a long-term disability (LTD) insurance policy and become unable to work, you may be entitled to monthly disability benefits of 50% to 80% of your prior earnings. LTD policies are classified as either "group" plans purchased through an employer or individual plans bought on the open market. Both group and individual policies can be hard to understand and riddled with legal jargon, strict deadlines, and exceptions piled upon exceptions.

The first thing to do if you're considering filing an LTD claim is to request a copy of the actual LTD policy and the summary plan description from your employer's human resources department. Those with individual plans should send a written request for plan documents directly to the insurer. Once you've obtained a copy of the policy and the summary plan description, read over them carefully, paying special attention to your plan's provisions in the following areas.

The Definition of Disability

Your policy's definition of "disability" can have a major impact on whether you qualify for benefits. LTD policies fall into two broad categories: "own occupation" and "any occupation." The definition of disability found in an "own occupation" policy might look like the following:

Disability exists when, due to illness or accidental injury, you are not able to perform, for wage or profit, the material and substantial duties of your regular occupation.

Notice that you're disabled under an "own occupation" policy if you're unable to carry out the duties of your own job. If you're a firefighter who is medically unable to handle the physical or mental requirements of that demanding job, you're disabled, even if you would be able to perform another, less strenuous job. (Indeed, you can often work another job in this situation. Read Nolo's article on whether working will reduce your LTD benefits to find out more.)

The definition of disability in an "any occupation" policy is more strict, as you usually must demonstrate that you're incapable of performing any job for which you are reasonably qualified based on your education, training, or experience. A firefighter who cannot lift heavy objects or climb ladders would not be disabled under an "any occupation" policy if he's still capable of performing other jobs, such as a clerk or cashier.

Many LTD policies switch from "own occupation" to "any occupation" after a certain period of time, often 24 months. Disability benefits may be terminated either because the definition of disability has become more strict (for instance, it changes to "any occupation") or because your insurer finds that you've experienced medical improvement related to your ability to work.

Exclusions and Limitations

Mental conditions. Benefits for disabilities based on mental and nervous conditions are typically capped at 24 months, though exceptions for illnesses such as schizophrenia and organic brain disease are common. Disabilities arising from substance abuse or alcoholism may be covered only for a short time or not at all.

Pre-existing conditions. Nearly all policies have exclusions for "pre-existing conditions," often defined as any condition for which you've received medical treatment in the previous 90 days.

Waiting period. Your LTD policy is also likely to contain an "elimination period," a waiting period during which you're disabled but not entitled to LTD benefits. The elimination period is often three to six months, and usually corresponds to the length of your short-term disability benefits.

Duration of benefits. Some LTD policies will pay benefits until you turn 65, but others pay only for a limited number of years. Check the summary plan description to determine your policy's maximum duration. The amount of benefits you'll receive varies from one policy to another, but most pay between 50% and 80% of your former salary.

Social Security disability. You will almost certainly be required to file for Social Security Disability Insurance (SSDI) benefits if you receive LTD. Your insurance company will "offset" your Social Security disability benefits against your monthly LTD amount (pay you less, by the amount of your Social Security benefits you receive).

Taxability of benefits. Whether your LTD benefits are taxable depends on whether your premiums are paid with before-tax or after-tax dollars. If you or your employer pay your premiums with before-tax dollars, your LTD benefits are taxed, as ordinary income. If you paid your LTD premiums with after-tax dollars, the benefits are generally tax-free.

Who Decides Whether I'm Disabled?

Group health insurance plans are governed by a federal law known as ERISA, the Employee Retirement Income Security Act. ERISA provides that LTD insurance companies themselves decide whether you're approved for benefits, a process that frequently results in good cases being denied. Be sure to follow your insurance company's instructions for filing your initial claim to avoid having your claim denied unnecessarily.

Appealing an LTD Denial

Read your policy for rules about filing an internal appeal, and take special note of all deadlines. You must exhaust your insurer's internal appeals process before taking your case to federal court.

Under ERISA, federal court judges are generally limited to reviewing the "administrative record" and will not consider any evidence that wasn't presented during your internal appeals. Thus, when you file an internal appeal, it is critical that you supplement the administrative record with favorable medical evidence, especially supporting statements from your treating physicians.

You should consider hiring an experienced long-term disability attorney to help you navigate the administrative appeals process and "stack the administrative record" in your favor. Most disability attorneys charge a fee only if you win your case.

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