As our video explains, there are big differences in how disability claims filed under group vs individual disability insurance plans are governed.
There seems to be a big divide in logic when examining ERISA laws (governing group benefits) versus state insurance and contract laws (governing individual disability insurance plans).
For the disabled claimant under a group policy, the system especially appears to work against them if an insurer denies their claim for benefits.
It helps to know some basic information about the insurance industry, and why a group disability plan is so different from an individual disability insurance (IDI) policy. Let’s take a look at how the two different types of long term disability insurance coverages actually work.
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Portability in Group vs Individual Disability Policies
Group Disability Plans:
Short term and long term group disability coverage is sponsored, partially or fully, by your employer. For this reason, all benefits are restricted to the job. If you leave the employer or for some reason lose your job, your disability policy would no longer cover you. In other words, group policies are not portable.
Individual Disability Insurance (Privately Purchased) Policies:
Most people buy this type of policy to insure their own specific occupation, and coverage is paid entirely by the policyholder. Therefore IDI policies are underwritten for that one person and will be portable – the person would be covered if they change their employment and occupation.
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Policy Language: Differences in Extent of Coverage
Group Disability Plans:
Most group policies start with a definition of disability as “Own Occupation.” This period of Own Occupation generally lasts 24 months (or less), and benefits are payable if you cannot perform your regular job or a similar job.
Then the definition of disability shifts to “Any Occupation.” From this point forward you can only get benefits if you can prove you are disabled from doing any job – a much harder undertaking.
Most group policies are also written to exclude or limit certain conditions. A few examples are pre-existing conditions, “mental-nervous” conditions, or exclusions for a disability resulting from certain surgeries. Policy language varies from plan to plan.
Individual Disability Insurance:
A person can establish the extent of coverage they include in their policy by adding specialty riders to their plan. Examples of disability insurance riders are:
- Non-Cancelable and Guaranteed Renewable Rider – as long as you pay them, premiums will never change and you are guaranteed the policy won’t be cancelled.
- Cost of Living Adjustments (COLA) Rider – your disability benefits will keep pace with inflation
- Own Occupation Rider – “Disability” is defined explicitly regarding your own, regular occupation (even if you start working in a different occupation.)
- Mental Disorder Coverage Rider – Unlimited coverage for a mental impairment or substance abuse
There are dozens more riders, and variations of the above riders. As options are added, the premiums become more expensive. Aside from expense, it is easy to see the advantage of being able to take part in writing your own “insurance contract.”
Benefit Amounts in Group vs Individual LTD
Group Disability Plans:
Your group benefit will always have a cap on the amount you can receive. If you become disabled under group coverage, your payable benefit amount is connected to your taxable income or base salary.
For long term disability, this is generally between 50% — 70% of earnings (what you earned prior to becoming disabled) for a specific period of years or until age 65.
Short term disability coverage (up to 24 months) can pay up to 100%.
Additionally, group insurance plans allow for income offsets. For example, the insurance carrier will require that you qualify for Social Security Disability benefits – then the carrier will offset your group benefit by the SSD amount you receive.
Individual Disability Insurance:
Disability coverage that you purchase privately is set up to provide a higher monthly maximum payment. The benefits payable are generally a percentage of pre-disability earnings – allowing you to collect a greater percentage of your earnings.
You are the one paying the premium, and you choose the options (riders) you want. As a general rule of thumb, you are paying higher premiums for better coverage.
Group vs Individual Disability Insurance Differ in Many More Ways
This article explains some major differences in the Plans or Policies. Yet there are a multitude of other differences, from the money damages you can receive in an ERISA lawsuit vs state insurance contract lawsuit, to the Standard of Review afforded each type of case by the court.
It may help to think of group LTD insurance as “employer-sponsored benefits” and privately purchased disability insurance as a private, long term “income protection plan.”
As a note to the above group disability information: it is often the case that a person has purchased an individual disability policy to supplement his or her group coverage.
Learn more about the differences in ERISA rules and private disability insurance laws that affect your disability claim.
In any case, when the insurance company who sold the plan denies your rightful and much-needed benefits to you, it is imperative that you speak to an experience disability lawyer as soon as possible. Call Marc Whitehead & Associates at 800-562-9830.
