Chapter 3:  The Boundaries of Your Policy

 

In the workplace good employers offer disability benefits. However, usually you will not be covered on your first day of work. Your policy likely will pay the benefit starting the first day you are disabled. Even if it pays on time, it will not pay back to day one. There may also be limits on how long it will pay based on your age or your type of illness. Only a percentage of your pay may be covered as well. These are the “Boundaries” or “Playing Field” for your policy.

 

The Schedule of Benefits

 

The Schedule of Benefits is a heading in most policies. That title is followed by a list of the critical terms and information. This can usually be found near the front of the policy. It will list for you several key matters such as the amount of your benefit, the way benefits are calculated, how long the benefit will pay, offsets, the minimum and the maximum amount of the benefit, the length of the elimination period, and the time limits applicable to different definitions. You must use the schedule of benefits with other policy provisions to know your coverage.

 

Here is an example:

 

LONG TERM DISABILITY INCOME COVERAGE SCHEDULE OF BENEFITS

 

Own Occupation Period The first 24 months of benefit payments

 

 

Elimination Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 days

 

Maximum Payment Period

Social Security Normal Retirement Age Table

Your Social Security Year of Birth Normal Retirement Age

Before 1938 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

1938 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 and 2 months

1939 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 and 4 months

1940 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 and 6 months

1941 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 and 8 months

1942 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 and 10 months

1943-1954 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  66

1955 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 and 2 months

1956 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 and 4 months

1957 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 and 6 months

1958 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 and 8 months

1959 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 and 10 months

After 1959 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  67

 

For a disability starting on or after the employee reaches age 60, the maximum payment period will be determined according to the following table:

 

Age When Maximum Disability Starts Payment Period

Age 60 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5.00 years

Age 61 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4.00 years  

Age 62 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3.50 years

Age 63 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3.00 years

Age 64 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2.50 years

Age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2.00 years

Age 66 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1.75 years

Age 67 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1.50 years

Age 68 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1.25 years

Age 69 or older . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00 year

 

But, if Your Disability starts after age 60, and You reach the end of the Maximum Payment Period shown in the table, and You have not reached your Social Security Normal Retirement Age, we will extend Your Maximum Payment Period until You reach Social Security Normal Retirement Age.

 

Gross Monthly 60% of Your Insured Earnings to a Maximum Benefit of $6,000.00

Benefit.

 

The Minimum Benefit is $100 or 10% of Pre-Disability Earnings, whichever is greater.

 

The schedule of benefits can have optional coverages. Those are coverages that may not apply to you, and that is where a danger arises. Many thought they had a certain level of coverage, only to learn at the time of disability that they lack the coverage needed. There can be many options, so I will give you a few examples.

 

If your employer provides a policy benefit of 50% or 60% of your wage, there may be an option to you to pay for more coverage such as 60% or 70% of your wage. Another option might be a lifetime benefit option. Some optional coverages only may apply to executives in companies, while others apply to plant workers. Options can vary, and they can be confusing.

 

You need to know which optional coverages apply to you and why. Do not take anyone's word for it, but rather back it up with documentation. Keep enrollment forms, pay stubs, letters, or print out emails on this and retain them with your policy. When changes occur replace your supporting documentation with more current proof.

 

This is important to take care of now because it may be years before you rely on your policy. You may not recall all facts relevant to the options you have selected, or you may be too sick or injured, and someone else must take care of your claim. Therefore, to prevent confusion and disappointment, make sure you see your coverages listed in the schedule of benefits. If it is not clear, then retain all papers, such as initial pay stubs making the deduction, letters from the insurance company outlining the option you have selected, or enrollment forms. Keep those papers with your policy. Having that information helps others assist you much more quickly if there is a dispute.

 

The Waiting Period

 

The “waiting period” or “eligibility waiting period” refers to the number of days, weeks, or months that you must wait until you are covered by the policy. Many people confuse this with the “elimination period”, which has an entirely different meaning. The term “waiting period” is typically in disability policies issued through the workplace.

 

Here is an example:

 

Eligibility Waiting Period

 

For Employees hired on or before the Policy Effective Date: The first of the month on or after 2 months of Active Service

 

For Employees hired after the Policy Effective Date: The first of the month on or after 2 months of Active Service

 

You are eligible for coverage, the first day after the waiting period. To put it more simply, it is the time that must pass after you start working for an employer before you are eligible for the disability insurance coverage.

 

To give an example, let's say that you work for an employer, and are told that during the first 90 days, you are on probation. While on probation you are not eligible for benefits, and then after those 90 days you are eligible for insurance benefits. That first 90 days then would be the “waiting period”.

 

The danger is that if you were disabled in the workplace during the waiting period, you would not be covered by a long-term disability policy. That is something to consider, because if the waiting period is unreasonably long, such as one year, you may need to have some other coverage in place. I recall seeing policies for airline pilots that had a waiting period of one year. If the waiting period is one year, then you might want to look at other options to be covered sooner.

 

The Elimination Period

 

This is different from the waiting period discussed above.  Although it does not involve “waiting” for coverage, it does involve “waiting” for the benefit payment to start. The “elimination period” is the number of days that must pass by or be eliminated before the benefit will start paying. For example, if there is an elimination period of 180 days, you must be disabled that long before your disability benefit will start paying on day 181. In fact, you must be disabled every day during that entire time frame. Any days you return to work on a full-time basis, performing the major duties of your occupation, will not count towards the elimination. 

 

The elimination period is listed typically in the schedule of benefits. It can be any number of days, such as 30, 90, or 180 days. The purpose of the elimination period is to make sure your disability likely will last for a longer term. It is thus wise to have a different policy, such as a short-term disability policy, to cover your lack of wages during the elimination period. Otherwise set aside vacation or sick leave or reserve funds to get through that time. You cannot count on Social Security as it does not pay a claim until after 5 full months of disability. It can take much longer to be approved. What is best for you is a shorter elimination period, but typically, the shorter the elimination period, the higher the premium.

 

Some policies have a provision that lets you make a return-to-work attempt. This can involve the elimination period. If you go back to work for a short while and fail, the elimination period timer does not start at the beginning again. You just pick up where you left off on your elimination period. But if your return-to-work attempt lasts too long, you may well start over.

 

For example, a policy may permit you to make a return-to-work attempt, but if that effort continues past the allowed time frame in the policy, such as six months, then the elimination clock is reset to zero and you must again wait to receive benefits. To illustrate further, let's say you are disabled for 150 days, and you only have 30 days left to start receiving benefits. If you make a return-to-work attempt and it lasts for six months and one day, many policies provide that the elimination period starts all over again if you again cannot work. On the other hand, if the return-to-work attempt fails after five months, the clock would not start over. After the remaining 30 days of the elimination, benefits would be paid. Pushing yourself to try to work just one more day can make a significant difference. Know where the lines are drawn.

 

The Maximum Benefit Period or Maximum Duration

 

This term refers to the maximum amount of time that benefits can be paid under the plan, if you prove your claim and the company agrees that you are disabled.  Benefits will end on the date stated in the contract regardless of ongoing disability. Of course, you do have to live until that date to collect, but that is the most that the insurance company can be obligated to pay. Some private disability policies pay a lifetime benefit. More commonly and especially with group policies, the benefit ends at retirement age of either 65 or Social Security normal retirement age, which is 67 for many now. However, some policies end after 60 months and some after only one or two years.

 

Frequently the definition of this term is listed in the schedule of benefits.

 

Here is an example of a term:

 

Maximum Benefit Period means the amount of time during which benefits will be paid for Total Disability. Benefits will end on the date listed in the Schedule of Benefits.

 

Another example is:

 

The Maximum Benefit Period is the 60^th month after the Elimination Period ended.

 

The term can also link to other provisions in the policy. There can be a limitation in the policy as to certain disabilities, such as disability from a mental nervous condition, or disabilities that are based on pain without objective evidence. Also, if you are disabled from your own occupation, but the insurance company thinks that you can work another occupation, there may be a limitation as to the maximum benefit period for your own occupation. This is commonly seen in policies at the two-year mark and in many instances now at the one-year mark.

 

This is obviously a critical term in the policy, especially if it limits benefits to only a few years and does not insure the loss of wages until retirement age. More than a few people have been caught unawares by this provision. If your policy is only going to pay one or two years of benefits for example, how is that going to help you? You may need another policy.

 

When Coverage Ends

 

When coverage ends is a term typically defined in the policy. It can serve as a reason to deny a claim even if premiums were paid. We all understand that coverage ends for a disability policy when you die. We also know the coverage ends when the maximum benefit period is reached.  People also understand that if you fail to pay premiums your coverage ends.

 

However, coverage may end for other reasons which are not as clear. For example, with a group policy if you stop meeting the definition of “actively at work,” coverage may end. That definition, explored more in another section, typically requires full-time work. You may also need to look at the definition of full-time work which could be as little as 25 hours or perhaps 40 hours. So, if your job hours are reduced to 20 hours on a regular basis, your coverage may have ended. It would be terrible to learn this after filing a disability claim. The fact that your employer may not have reminded you may not matter to the insurer. The insurance company is usually looking for a reason to deny a claim, and that might well suffice.

 

Also, if your job requires you to travel out of the country for more than 30 days, some policies end coverage for that. If you are no longer working in the United States, your coverage might end. You will want to know in advance what circumstances could cause coverage to end. For those circumstances under your control, pay close attention if they arise to avoid issues.

 

Here is an example of this provision:

 

We will not pay benefits for more than 12 months while You reside outside the United States or Canada. You will be considered to reside outside these countries when You have been outside the United States or Canada for a total period of 6 months or more during any 12 consecutive months during a Disability.

 

For a group policy, if your employer fails to submit premiums that could be a problem.  If your employer is struggling financially, you may wish to make inquiries about the policy. If deductions cease to be evident on your pay stub, there may be a problem. Occasionally an employer will also deduct the premium from pay and not send it in. Seek legal counsel if that is evident.

 

Keep in mind, however, that the employer providing disability benefits can terminate that welfare plan at any time. However, if you already made a claim, there may be grounds to continue with the coverage if language in the policy so provides.

 

Mental Illness Limitation

 

A mental illness limitation provides coverage for mental illness but limits it to a shorter time period than other illnesses or injuries. For example, many policies have a mental illness limitation of two years or 24 months. That means that if a mental illness is the primary cause of your disability, then the insurance company will only pay your claim for 24 months. Some policies reduce that to 12 months.

 

Here is an example of a mental illness limitation:

 

Benefits for disability due to mental illness will not exceed twenty-four months of monthly benefit payments.

 

Clearly the longer the limitation, the better for you.

 

Insurance companies attempt to limit the risk for paying claims for a mental nervous disorder, as such disorders are often based on subjective proof. Insurance companies dislike subjective proof because it is harder to evaluate. You cannot take a photograph or x-ray of a mental or nervous condition. Such conditions are typically diagnosed based on the clinical examination of a professional such as a treating psychiatrist, or psychologist.

 

Typically, policies with this limitation also define mental illness. The definitions can vary from a reference to the DSM (Diagnostic and Statistical Manual of Mental Disorders) or to a broader definition, such as mental, nervous, emotional diseases, or disorders of any type. The danger that exists here is that a significant number of people suffer from depression after they begin to experience a disabling, physical sickness or injury and especially so if chronic pain is involved. If the sickness or injury were removed, they would not suffer from depression. Nonetheless, the insurance company may well latch on to a depression diagnosis to limit payment on the claim, notwithstanding that it was not restricting or a problem before the underlying sickness or injury.

 

Attention to detail is critical during the claim process. For example, it is important to make certain that records document the primary diagnosis and the secondary diagnosis. It is important to make sure your treating provider is aware of the limitation and of the fact that if there are physical problems that disable primarily, those should be well documented.