All Disability Policies Are Not Created Equal
In another article A Summary: Long Term and Short Term Disability, we discussed the connection between Social Security Disability and private disability insurance. This issue’s article will provide more information about private disability insurance coverage.
Disability insurance is one of the most important forms of insurance that you can have because it protects you from financial disaster when you are most vulnerable due to illness or injury. Despite the cost, it is essential that you have some type of income protection in the event of unexpected disability.
There are two basic types of coverage, ERISA plans and non-ERISA plans. ERISA is short for the Employee Retirement Income Security Act of 1974. This federal law dictates a worker’s entitlement to benefits, a worker’s right to obtain information and a worker’s remedies if a claim is denied. ERISA plans are those typically provided by an employer or an employee organization such as a union. Generally, all it takes to subject a policy to ERISA is an employer’s endorsement of the policy or plan.
Non-ERISA plans are disability insurance policies purchased by individuals on their own and not endorsed by an employer. These private policies are governed by basic contract law principles and often have more lenient definitions of disability and other terms that can benefit you. Although these types of policies may offer important advantages over ERISA plans, such as more liberal definitions of disability and longer benefit periods, they often come at a higher price.
It is important to understand the terms of your disability insurance policy. Some policies provide that for the first two years, you are entitled to benefits if you are disabled from your regular occupation. After the first two years, you are entitled to benefits only if you can show that you are disabled from all occupations. For example, the insurance company may cut off a coal miner’s disability benefits by showing that he still has the ability to be a greeter at a local store. It can be extremely difficult to meet the requirements of such a policy on a long-term basis.
The difference between the two types of policies is significant if you are denied benefits:
- Under an ERISA plan, you first file your claim with the insurance company’s administrator, who makes the initial determination as to whether you are disabled and entitled to benefits. If the administrator denies benefits, you must file an action in federal court, where the judge decides not whether you are disabled, but whether the administrator reached the decision in a reasonable manner. In this case, even if the insurance company is wrong, you will not recover benefits unless you can show that your claim was reviewed in some unreasonable manner.
- Under a non-ERISA policy, if benefits are denied, a claim is filed in state or federal court. The court will decide all of the issues, including disability, under ordinary contract law.
If you currently have a disability policy, we would be happy to review it and give you our advice. Older policies may have better terms and benefits than can presently be obtained. You need to be fully informed before either canceling a policy or deciding that your employer’s policy is sufficient to cover any potential disability. Contact an experienced long-term disability attorney via email or call us at 724-837-0080 in Greensburg or toll free at 888-534-6016.
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