Chapter 2:  What is Disability?

 

Some people think that disability refers to being confined to a bed. However, what is being insured generally are the wages which you earn from your occupation, or perhaps more broadly, the wages which you could earn at any occupation. There are some policies that may only provide coverage if you are bed bound or otherwise lack the ability to perform several of your “activities of daily living” (ADLs). This usually refers to feeding yourself, dressing yourself, getting into or out of a bed or chair, taking a bath or shower by yourself, and using the toilet by yourself.

However, the vast majority of physical and mental problems which exist can interfere with your ability to work a full-time occupation, but not interfere with you performing your ADLs. You need not be confined to a bed to qualify for the income protection. If you think about it, very few people would be interested in only insuring themselves as to the inability to perform ADLs.

The market is instead focused on insuring against the inability to perform a full-time or at least part-time occupation. Again, that does not require you to be confined to a bed in order to see your benefit paid. In fact, if you are not able to work several days every single month, most employers are not interested in employing you in a full-time position. Further, if you will be unpredictably out several days every month, most employers are not interested in employing you for a part-time position.

 

Employers often need to rely on the employee to perform the duties required of a job position at a given time. That requires working with reasonable continuity. The ability to work with reasonable continuity in either a full-time or part-time position is a critical ability. Many job positions require more than an employee who can only work when he feels up to it. That is too uncertain usually.

 

Insurance companies define disability in their policies and most use three critical definitions. The first pertains to disability from your own occupation. The second is disability from any occupation, and the third is residual disability, also called partial disability. Each term has its own criteria and concerns, or dangers associated with it.

 

Own Occupation

 

In a disability policy, the “own occupation” term refers to the occupation that you were performing just before you could no longer work. Some private policies may reference a very specific occupation, such as if you are a certified physician, certified teacher, or specialized attorney. These definitions of own occupation are normally better than the definition found in a group disability policy.

 

Group disability policies on the other hand may define your own occupation as the occupation title as it is performed in the national economy. They may use an occupational guide from an old Department of Labor standard that the insurer has modified. Such policies match the name of the occupation with that guide, and consider only the job duties as performed in the national economy, rather than for your specific employer. That can be unfair.

 

Two examples of Policy definitions illustrate this. First, an example of a “special own occupation” provision in a private policy is as follows:

 

Your own occupation means the occupation (or occupations, if more than one) in which you are regularly engaged at the time you became disabled. If your occupation is limited to a board-certified specialty, we will deem your specialty to be your occupation.

 

Here is a contrasting own occupation definition from the group disability policy:

 

Your own occupation means the occupation or occupations you are routinely performing for your employer immediately prior to the first date of disability. It is further defined to include any employment trade or profession that is substantially similar in terms of tasks, functions, skills, abilities, knowledge, training, and experience required by employers from those engaged in that occupation in the general labor market in the national economy. It is not defined with reference to a specific employer or with reference to work at a specific location or work environment.

 

As you can see, this second definition of “own occupation” refers to the general labor market in the national economy, and not the work at your job. The first definition looks more specifically at the material and substantial duties of the occupation you were performing when you became disabled. If your occupation is limited to a board certification, then the duties examined may be those that are pertinent to that board certification, rather than what you were specifically doing just before you became disabled. Many people are surprised when they learn of the “own occupation” definition in their policy after filing a claim.

 

The unfairness that can arise here occurs when the job you were performing is far different than how it is categorized or how others perform it. Let's say that your occupation requires you to lift 50-pound boxes off a conveyor belt and move them into the back of a truck. You have an unfortunate accident and now you can only lift and carry 10-pound boxes. You are not able to carry 50-pound boxes. However, in the national economy that same occupation may be performed with equipment that does not require the individual to lift and carry the 50-pound boxes. The ability to carry 10-pound boxes is enough, so even though you can't perform your job your claim is reviewed using the 10-pound requirement.

 

The insurance company will use a national economy definition in that situation to deny your claim, since the way your occupation was performed at your job site was much more challenging. To compound the unfairness, there may be no jobs in your state like the “national economy job.” That places you in a difficult position as you are unable to perform your job, but yet the insurance company refuses to pay disability benefits. That is a regularly occurring and unfair trap for the unwary.

 

Any Occupation

 

Any occupation in a disability policy pertains to any full-time job that exists. Many policies will pay for disability from your own occupation for a time and then the definition of disability changes to the inability to perform any occupation. That term means any job that exists. Both private and group disability policies may have a change in definition for disability from own occupation to any occupation. Frequently, that occurs after 24 months of benefits have been paid. Some policies may set that at a lower mark, such as 12 months, and some may set a much higher level, such as 36 months.

 

That change in definition typically triggers a critical review of the claim before that change occurs. There is typically an effort to terminate the benefit at that point. In group disability policies that may refer to any defined occupation in the national economy. The insurance company will use the same guide from an old Department of Labor standard to ascertain that there is some job out there that you can perform.  Even greater unfairness arises however when that job no longer exists in the national economy.  The problem is that the guide dates back to the 1970s or 1990s and many jobs have been made obsolete since then by automation. It is unfair to see your claim denied if that occupation no longer exists in the national economy. Insurers must be watched on that.

 

Many people think of the “any occupation” definition as being disabled for Social Security disability purposes. The Social Security Administration does not use that term, but rather evaluates if you are able to perform Substantial Gainful Activity (SGA). SGA refers to the ability to earn monies in excess of the limit allowed under the Social Security Administration regulations. That is a difficult standard to meet given you may be able to earn that amount or more working less than 40 hours per week. Most policies provide an “any occupation” definition that is easier than that standard given it generally relates to an occupation working full time at least 40 hours per week.

 

Understanding the “any occupation” definition is very important before attempting work. Many people who are restricted from performing their occupation strongly identify with the need to work. They truly want to do something to contribute to their home and society. Many policies respect that ethic and will still pay a benefit to encourage work attempts. The benefit may be for a reduced amount, but as long as earnings do not exceed a certain level, the benefit may continue. Other policies may not respect that ethic and may take a work attempt as proof of the ability to work any occupation. It is best to be aware of policy terms, before such an attempt, in case the attempt fails.

 

Here are two examples of any occupation provisions in disability policies:

 

Any occupation is defined as ‘any occupation for which You are qualified by education, training, or experience that has an earning potential of greater than the lesser of: (1) 50% of Your Pre-disability Earnings; or (2) the Maximum Monthly Benefits.'

 

Another:

 

You are Disabled from any occupation if, as a result of Sickness, Injury, or Pregnancy, you are unable to perform with reasonable continuity the material duties of any gainful occupation for which you are reasonably fitted by education, training, and experience.

 

Some parts of these definitions are helpful to remember such as the terms “education, training, and experience”. That limits the universe of jobs you must be able to perform. Only those occupations which you have performed in the past, or for which you have been educated or trained to perform are to be considered.

 

Another helpful term is the 50% earnings qualifier in the first definition. It is defined in connection with prior earnings. Any occupation is defined to exclude jobs that earn less than 50% of what you were making just before you became disabled. Thus, if you were making $50,000 per year, the insurance company could not utilize an occupation which might earn $20,000 per year to find that you are not disabled under the any occupation definition. It would have to demonstrate that there is an occupation paying $25,000 or more that you could perform, in order to fairly deny the claim.

 

Under the second definition, there is a reference to the definition of a “gainful occupation”. If there is a definition of gainful occupation it may refer to earning a certain amount of money. That may be beneficial and might exclude occupations such as selling pencils on a street corner. However, gainful occupation can be defined to merely refer to an occupation which you could be trained to do within a certain time such as 12 months.

 

Here is an example of that less favorable definition of gainful occupation:

 

Gainful occupation means an occupation in which you could reasonably be expected to earn at least as much as your Schedule Amount within 12 months of your return to work.

 

The words “Schedule Amount” are capitalized and that means it is defined. You will need to search the policy for that. If the Schedule Amount is defined to be low, such as minimum wage, that is undesirable if you had a better paying job.

 

The last limitation noted is “education, training, and experience”. The insurance company, in analyzing that definition, will look at all of the jobs that you have performed in the past and look at your education, as well as any training, and then ascertain if there is some occupation that you might be qualified to perform. Thus, if you performed heavy labor all of your life, and never worked at a computer, nor had any computer training or education in using computers, occupations involving a computer should not be considered.

 

On the one hand, for individuals who are holding a job position at a desk working with a computer, they may be quite capable of performing several different sedentary occupations. On the other hand, one who no longer possesses the cognitive ability to engage in a sedentary occupation which requires high cognitive function, may yet possess the physical ability to do heavy physical labor.

 

Residual Disability

 

Residual disability or partial disability may mean that you can perform some duties of an occupation, or you can perform all of your duties but not full-time. Residual disability is a provision that can be a blessing and a curse at the same time. It can be used to deny your claim or permit you to work and still receive a benefit.

 

For those who can still perform the occupation in a way that is beneficial to employers, it is a blessing. It allows you to continue to contribute financially to your household and yet you can continue to receive part of a disability benefit.  This acts as a lifeline or support in the future in case of decline in ability or a relapse. Usually, the disability benefit is reduced by earnings, but at least it remains in place in case your condition worsens, and you can no longer work. Then a full disability benefit would be paid. 

 

The curse that can arise is that this provision is often used to make it difficult to obtain a total disability benefit. Here is why. This provision states that if you are able to perform one or more duties you are residually disabled. According to an insurer, that means total disability requires you to show inability to perform every one or all material duties of your occupation. If one of the duties of your occupation is to answer phone calls, it is possible you could still do that confined to a bed. Indeed, some insurance companies have argued that if you can watch TV, you certainly can perform one or more duties of a sedentary occupation. Thus, at best you are only residually disabled, and your benefit will be less.

 

Courts have not agreed on how to apply both the total disability definition and residual disability definition when in the same policy. Most do not go along with a total disability definition that requires you to prove inability to perform each and every duty of your occupation. If you can perform only one duty of an occupation, you are not likely to be employable in the marketplace. However, because this area of law is not entirely settled, much caution is needed on how the claim is presented. 

 

Here is an example of a residual disability definition:

 

RESIDUAL DISABILITY. We will consider you residually disabled if due to sickness or injury:

1.     your Loss of Monthly Earnings is more than 20% of your Prior Monthly Earnings; and

2.     your Loss of Monthly Earnings is the result, directly and apart from any other cause, of an injury or sickness as defined in the policy; and

3.     you are unable to perform one or more of the material and substantial daily duties of your occupation; or you are unable to engage in your occupation for more than 80% of the time as was usual prior to the start of your disability. After total or residual benefits have been paid for 3 months, this time or duties requirement will be waived.

 

Ironically, despite the fact that some courts have held that a residual disability definition actually weakens the definition of total disability, typically there are increased premiums involved. Some claimants have been surprised to learn that they paid more to receive less. Fairness says that is not how this term should work.

 

Minimum Benefit and Maximum Benefit 

The minimum benefit in a policy usually refers to the least amount that will be paid under that insurance policy. It usually is listed in the schedule of benefits. Typical language about the minimum benefit states, “The Insurance Company will pay the Minimum Benefit shown in the Schedule of Benefits despite any reductions made for Other Income Benefits. The Minimum Benefit will not apply if benefits are being withheld to recover an overpayment of benefits.”

 

What this means is that your policy may reduce the benefit to be paid by the amount of other income you receive such as Social Security or retirement. So even if there are offsets to your disability benefit which reduce the benefit to a very low number or even a negative number, the policy will still pay the minimum benefit regardless. The amount in group policies is typically minimal, such as $50, $100 or perhaps 10% of your long-term disability benefit before reductions or offsets. The point of paying a minimum benefit appears to be to prevent the policy from being illusory. In other words, since you are still receiving something, the policy still provides some consideration for the premiums paid. It is very hard to appreciate $50 per month, so make sure you know the minimum benefit amount in your policy.

 

If you receive a lump sum for past benefits that are offset against your long-term disability benefit, such as a Social Security disability award, then that retroactively changes the amount of the past benefits that should have been paid. The benefit is retroactively reduced to a lesser amount or perhaps the minimum benefit. If you pay part or all of that lump sum back to the insurance company, then you should continue to receive the offset benefit in the future, as long as everything is balanced out. If you do not pay the overpayment back to the insurance company, the offset benefit may be withheld until the insurance company receives back the excess money it paid.

 

Several insurance companies become aggressive at this point, since that offset benefit amount is small or much reduced. They think the claim will not be challenged and many deny claims when Social Security is received. That is especially the case if you do not pay back in a lump sum the amount it overpaid. However, you should not only focus on the present minimum benefit. If the benefit could increase later, you may need to keep the offset benefit in place. If you lose the benefit, you may lose the future opportunity to see it pay later when it increases. You must look at the overall claim value.

 

For lower incomes, when the minimum benefit is very low, such as $50, it becomes clear that the realistic benefit of the long-term disability policy is to provide some means of financial support until Social Security disability benefits are finally paid. The majority of approved Social Security disability claims take one and a half to two years until they are paid, given most must proceed to a hearing before an administrative law judge. The long-term disability policy pays a benefit while you are waiting for that, and then it diminishes to very little when you receive Social Security.

 

The maximum benefit is also set out in the schedule of benefits. It sets the maximum amount of any disability benefit that can be paid under that policy. For example, if a policy has a maximum benefit of $5,000 per month, and you were making $120,000 a year when you became disabled, your policy will only pay $5,000 per month even if the policy was supposed to pay 60% of your wages. Sixty percent of your wages would be $6,000 per month, but the maximum benefit provision is a cap and reduces it to $5,000 per month before any offsets. The offsets can reduce it more, as usually the cap is applied first and then offsets reduce it more.

 

The maximum benefit can surprise many people who see an increase in their earnings over time, since it caps the amount of the long-term disability benefit before any offsets. For example, if two people receive Social Security disability at $2,500 per month, and both have the same policy, but one is making $120,000 year and one is making $100,000 a year, both of those people will receive the same long-term disability benefit after offsets due to the maximum benefit cap. The $5,000 maximum benefit cap will not affect the lower wage earner, but it does affect the higher wage earner. In this example the long-term disability benefit is reduced for a higher wage earner due to the maximum benefit cap. When your earnings rise, it is time to look at your disability policy and make sure you are not penalized under the terms in place before a claim arises.