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At Kantor & Kantor LLP, we like to refresh and give updates on certain parts of the process we use to help individuals. We feel that the more people understand their insurance benefits, the better they will be able to fight when benefits are denied. Long-term disability (LTD) insurance is a large part of this process, so we will explain the basics here.

Long-term disability insurance is an insurance policy that protects an employee from loss of income in the event that he or she is unable to work due to illness, injury, or accident for a long period of time.

Long-term disability insurance can provide benefits for work-related accidents or injuries that are covered by Workers’ Compensation insurance, but there usually will be an offset, where the LTD benefit is reduced dollar-for-dollar by the amount of Workers’ Compensation payment. LTD also does cover an employee in the event of a personal accident such as a car accident or a fall.

Long-term disability insurance ensures that an employee will still receive a percentage of their income if they cannot work due to sickness or a disabling injury, usually between 50-70% of pre-disability earnings.

Most frequently, Long-term disability insurance is available through the employer. However, some policies allow for a “buy-up” which increases the percentage of benefits. Because the employee pays the premiums for the supplemental (buy-up) policy, those benefits are not taxable, whereas a policy paid for by the employer is taxable.

Long-Term Disability Insurance Plan Coverage

Long-term disability payments to the employee usually have a defined period of time, for example, 24 months for own occupation, at which point the insured must prove s/he cannot do any other job and earn a certain percentage of their pre-disability earnings, usually between 60-80%, with 80% being the most common.

For example, if you earned $100,000 before your disability, cannot perform the material duties of your own occupation, but can earn $80,000 or more in another occupation, you will not be considered disabled. The insurance company may perform a transferable skills analysis to identify alternative occupations the claimant can do that meet the earnings requirements of the policy.

Each long-term disability insurance policy has different conditions for payout, certain illnesses or pre-existing conditions that may be excluded, and various other conditions that make the policy more or less useful to an employee.

The most common limitations are due to mental/nervous conditions and drug/alcohol abuse, limiting payments to 24 months. Other policies also limit or exclude disabilities based on musculoskeletal disorders or Chronic Fatigue Syndrome.

Long-Term Disability Offset

Nearly all LTD policies have provisions for offsets – that is, the benefit is reduced by payments from other sources. The most common offsets are Workers’ Compensation payments, State Disability Insurance payments, and Social Security Disability Insurance payments.

LTD policies also contain maximum and minimum benefit amounts, so in the event, other benefits completely offset the LTD benefit, the employee will still be entitled to the minimum payment, usually $100 per month, although other policies provide for a minimum payment of 10-15% of the gross LTD benefit.

Elimination Period

Nearly all LTD policies contain an “elimination period” provision, which is how long an insured must be disabled under the terms of the policy before benefits become payable. This waiting period varies and can be anywhere from 90 days up to a year, although 180 days is probably the most common. During this time, the employee can apply for short-term disability benefits.

Maximum Long-Term Disability Benefit Date

Long-term disability benefits are not payable forever even if the employee remains disabled under the terms of the policy and will cease either upon the employee reaching age 65 or the retirement age as of the date of the issuance of the policy. For example, if you become disabled in the year 2020, but the policy effective date was the year 2009, LTD can continue until past age 65, depending on what the full retirement age was in 2009.

In addition, policies usually provide for a maximum number of monthly payments for individuals who become disabled closer to or after the full retirement age. For example, an employee who is 69 years old as of the date of disability will be eligible to receive only a few months of LTD (usually between 12 and 18 months, depending on the policy), even if the disability continues.

To remain eligible for LTD benefits until retirement age, the claimant must be unable to return to work and earn more than a certain percentage of pre-disability earnings, receive treatment for their condition, and cooperate with the insurance company which will periodically reassess whether the claimant remains disabled.

Partial Disability

Partial disability occurs when the employee is not “totally disabled” and, while actually working in his or her own occupation, is unable to earn more than a certain percentage of the employee’s pre-disability earnings, usually 80%. Partial disability requires that the employee engages in his or her own occupation, as opposed to any alternative occupation.

If you or someone you know is disabled and unable to work and has questions about Long-term disability and your other employee benefits, please contact Kantor & Kantor or use our online contact form. Our long-term disability insurance lawyers are experienced in handling appeals and going to trial if necessary to help you recover the benefits you justly deserve.