An individual long term disability policy is simply a privately purchased policy. You, and not an employer, made the personal effort of shopping for a long term disability policy. The policy was sold directly to you by either the disability insurance company or through an insurance broker. As part of your disability insurance application process, you might have undergone a medical evaluation, including blood tests, blood pressure, urine samples, etc. Your monthly premium is paid directly by you and is not deducted from your employment paycheck. The policy was not issued through your employer as part of the employer's benefits package. An employer issued disability policy or group policy is simply a policy provided to employees as part of an employer group benefits plan. You are enrolled into the plan automatically and all premiums are paid by your employer or premiums are deducted directly from your employee paycheck. Different variations exist.
The main difference between individually purchased vs. employer issued policies are the specific laws and intricacies that govern the wrongful denial, delay or termination of valid claims. Individual disability policies are governed by state law. Disability employer group policies are usually governed by ERISA, a federal law enacted 1974.
Individually purchased policies have more favorable consumer laws, including a faster appeals process (if any), bringing suit in state court and suing for bad faith. Trial by jury is allowed. Employer group disability policies have less favorable consumer laws, have a lengthier appeals process, and suit must be brought in federal court with a federal judge deciding the outcome of the case. In addition, trial by jury is not allowed and witness and physician testimony may not be allowed. Furthermore, ERISA is a complicated federal law most attorneys are just not knowledgeable, experienced or skilled at interpreting or handling.
Another very notable and important difference is how disability is defined. With an individual disability policy, one can purchase a policy that provides own-occupation coverage which pays disability benefits even if you are working in another job that was not your own-occupation at the time you became disabled. Most employer group long term disability insurance policies define disability as your inability to obtain any gainful occupation. This means that in order to obtain disability benefits you must not only be unable to perform your own occupation, but also any other occupation for which you are qualified by education, training or experience. This is a much more restrictive and inflexible policy as compared to an individual policy.
Residual or partial disability is treated differently under both plans. Under an individual policy, residual disability may be paid up to age 65. This means that if you are partially disabled, you may still receive disability benefits. Under an employer group plan, residual disability may not be covered at all and some may pay for up to 2 years only. Therefore, if you are partially disabled under an employer group plan, you may not be covered at all in the event you are partially disabled.
Mental and nervous disabilities are treated differently as well. With an individual policy you can purchase a plan that covers mental and nervous disabilities like any other disability and are covered without any time restrictions, including for drug and alcohol addictions. Employer group plans cover mental and nervous disabilities for up to 2 years maximum and usually will cover drug and alcohol addictions for no more than one year.
Covered income is also treated differently. An individual policy will cover your earned income as reported on your federal tax return, which will include bonus, commissions, tips and other profit sharing income. Employer group plans will only cover your base salary, which will not include bonus, commissions, tips and other profit sharing income. Therefore, if you are a company executive and the majority of your earned income is made up of bonus and stock options income, you may be covered for much less than you think.
Even the taxation is treated differently under federal income tax rules. With an individual policy, any disability benefits received are tax free. With an employer group plan that pays your policy premiums, any disability benefits received are taxed as ordinary income. Therefore, if your policy covers up to 60% of your lost income you really earn less when federal tax rates are applied.
Other differences include portability issues, maximum limits on disability payments received and other important factors.
The Law Firm of J.P. Gonzalez-Sirgo, P.A. represents individuals that have had their valid long term disability benefits denied, delayed or terminated irrespective of whether the policy was purchased individually or issued through an employer group policy. The firm is available to assist individuals with the initial application process, during the administrative appeals process, handling denials of claims or termination of benefits, litigation in state or federal court, and negotiating a one-time lump sum settlement or buy-out. Please contact our office to discuss your case in more detail.