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Issue: # 111
<March 3, 2014
  
Self-reported Claims limitation video

Dear  :     

 


Many employers have Group Life and Disability Insurance.  If we were to compare basic group term Life and Short-term Disability policies from different insurance carriers there would be some differences between contracts, but, for the most part the language between carriers is very similar.  You typically will not find any glaring differences.  On the other hand, Group Long-term Disability policies can have major variations, and the repercussions may be very material!

Why? Although a Group Life of 100,000 and Short-term claims may sound large, they pale in comparison to an employee 25 years old suffering a long-term disability.  A 25 year old employee, who could never work again, collecting $3,000 per month to age 65 would equate to a claim of $1,440,000!!

As a result, insurance companies try to reduce their exposure with long-term disability contracts by inserting language that people are not aware of, or do not even look at until they file a claim and then, it is too late. One clause called the self-reported claim limitation( watch the video above) is now common and can easily be overlooked.

 How big a problem is this? Some lawyers, Marc Whitehead and Associates, 
UNUM & Class Action
make a living solely representing people being denied benefits.   In particular representing people denied by UNUM Insurance and their subsidiaries including Paul Revere and Provident.   
 
Its always important to look at the bottom line, but please make sure you are not sacrificing benefits and understand exactly what you are looking at.



Sincerely,
 

Self-reported Claims Limitation
 

A self-reported condition limitation is specific language in a long term disability policy.  This limitation is aimed at directly trying to limit usually to a 24-month period certain conditions such as:

  • chronic pain
  • fibromyalgia
  • chronic fatigue syndrome
  • headaches or migraines. 

 

This gives the insurance company the ability to say, "Yes, we agree that you have the condition, unfortunately, it's capped at a 24-month period.  You do not want this language in your Long-term disability contract.  

 

This is not a provision that employers will ask for.  This topic comes up in a competitive situation and multiple brokers are quoting different carriers.  When a carrier includes this language in the policy it directly reduces premiums.  So, make sure you are comparing policies that are using the same language.

 

Every now and again, we have an employer who wants to reduce costs and we bring this option up.  As long as you understand the implications, it can be a way of retaining the benefit at a reduced cost.

Partial/residual disability

You want this included in your contract. 


For example, assume your current or proposed coverage stipulates that you are entitled to a monthly benefit maximum of $7,500 if you are totally disabled.  You suffer a residual (partial) disability that results in a 40% loss of regular monthly income.

You will be eligible to receive a monthly disability income benefit of 40% of your policy maximum, if you partial/residual disability included in your contract.

 
38 days to the Masters
Who pays premiums?
 
Why does this matter?
  1. If Employees pay the premiums (ON AN AFTER TAX BASIS) benefits will be tax-free.   
  2. If Employers pay the premiums, the benefits will be taxable to the employee.  
  3. IF Employees pay the premiums (ON A PRE-TAX BASIS)  benefits will be taxable.

Obviously this has a material impact to an employee on whether the benefits are taxable or not.

 

We have run into situations where the employee does pay the premium and expects to receive their benefits tax-free, but the policy says the premiums are paid by the employer and benefits become taxable.   

 

It is important to make sure that the policy itself reflects who is paying the premium to avoid problems when claims are incurred.    

Long-term contract provisions

There is even more contract terms you need to consider:

 

  • Work Incentive (Unlimited)
  • Advanced Survivor
  • Retirement Contribution
  • Medical/COBRA Premium Expense
  • Education (per student)
  • Extended Earnings Protection
  • Vocational Rehabilitation (5% included on all quotes). Note rehab not mandatory to receive benefits.
  • Temporary Work (paid to employer)
  • Minimum Indemnity (Dismemberment)
  • Progressive Disease
  • Special Conditions Limit (included only as a cost saving option)
  • Supplemental (ADL)
  • Infectious/Contagious Disease
  • Business Protection'
  • Family Care
  • Wellness Screening

If you or one of your employees has a long-term disability claim, you want to have a quality policy that will pay claims in your employee's time of need not one that will have language to deny or reduce a claim.  It is that simple - or that complex!.