Understanding Disability Insurance, An Attorney’s Perspective (Part 1)

Mar 7, 2016 - Articles by

As an attorney, in a practice dedicated to representing impaired professionals with individual and group disability insurance matters, I am troubled by the general lack of knowledge regarding disability income replacement insurance. My concern stems from the sobering reality that more than 1-in-4 of today’s 20-year-olds will suffer a disabling medical condition before they retire.1 While this statistic is troubling, it pales in comparison when considering 68% of adult Americans fail to set aside money for emergencies.2

Piggy bankYou need only reflect on your own financial situation. Take a minute. Research confirms 65% of working Americans would be unable to pay their normal living expenses within a year of losing their employment income.3 This same study confirmed that 38% would be unable to pay their bills within 3 months.4

Despite these statistics, over 100 million workers lack individual disability income insurance.5 While these policies typically provide better coverage than employer-sponsored group long-term disability insurance plans, which are generally governed by the Employee Retirement Income Security Act of 1974 as Amended (hereinafter “ERISA”), it is imperative that you carefully review the policy application and the policy language regarding coverage periods and limitations. Too often, potential purchasers and individuals with these policies fail to review the policy limitations thoroughly. As such, they end up purchasing a policy that provides significantly less coverage than understood from the marketing materials.

Unlike individual disability policies, employer-sponsored group plans typically do not contain individual applications or coverage options. The employer typically negotiates the conditions and limitations in these plans, which contain significantly less favorable language than would be provided in an individual disability policy. While 31% of employees in the private sector have coverage under an employer-sponsored plan, these employees lack a general understanding of the limitations in these policies.6

Please note I am not a licensed broker nor am I an agent for any company. I am an advocate that has analyzed how these products are marketed, sold, administered, disputed, and litigated. As such, I am compelled to advise those with, or considering, one of these policies to pay special attention to the terms, conditions, and limitations. The income from these policies will be your most valuable assets should you ever become disabled. As such, it is imperative that you understand your coverage. If you have any questions or concerns, you should contact your broker, HR representative, and/or an attorney.

1: U.S. Social Security Administration, The Facts about Social Security’s Disability Program. SSA Publication No. 05-10570, January 2015

2: U.S. Federal Reserve Board, Survey of Consumer Finances, 2010

3, 4: Council for Disability Awareness, Disability Divide Consumer Disability Awareness Study, 2010

5, 6: U.S. Social Security Administration, Fact Sheet February 7, 2013