This week, an update on disability insurance. You may remember a column on that topic a few months ago. Well, after that piece was published, I received a comment on my website (JeanChatzky.com) from a reader named Bob who wanted to share his story. He, like many people, had relied on disability coverage through his employer. In my column, I noted that this coverage, while helpful and cheap (sometimes free), is typically not enough.
Bob experienced that — and then some. To make a long and painful story short, he said he had to produce “reams of documentation regarding every test and office visit with five doctors.” His insurer also required policyholders to acquire the maximum amount of Social Security Disability Insurance, which his disability policy then supplemented.
This requirement is common with group coverage: Your policy may call for replacement of a percentage of your income — in most cases, 60 percent. If you are approved for SSDI, your benefit covers what SSDI does not. Say 60 percent of your income is $3,000 a month, and you qualify for $1,800 from SSDI. Your insurer would then provide only the remaining $1,200 a month. And approval for SSDI is by no means guaranteed. According to a 2010 report by the Social Security Administration, about 75 percent of people who apply are turned down the first time around; half eventually get approved after appealing, which can take three or four years.
It’s important to understand that disability insurers do approve the majority of claims they receive, says Whit Cornman, a spokesman for the American Council of Life Insurers. “A 2010 industry study, conducted by Gen Re and representing the majority of group disability carriers, indicated that 75.9 percent of submitted long-term disability claims were approved,” he says. “Of those claims not approved, 23 percent were not paid because the claimant had never met the elimination period.” That is to say, they recovered or returned to work before the insurance was set to kick in.
But there are key differences between individual and group coverages. One of these discrepancies has to do with a policyholder’s consumer rights, says Frank Darras, an insurance attorney in California. If an individual disability insurer wrongfully denies or delays benefits, in some states you can sue for damages or emotional distress — which is important because in many cases if your benefits are delayed, you may not be able to pay your monthly bills. This can have long-term ramifications, ranging from a tarnished credit report to foreclosure.
Under ERISA (the Employee Retirement Income Security Act of 1974), that’s not true in the case of most group policies, Cornman explains. “While ERISA limits punitive damages in cases that are decided in the courts, it does allow judges the discretion to award attorney fees.” Whether your group plan is governed by ERISA is based on how your employer sets it up.
Here’s the thing, though: For many, group disability is the only affordable option. If you can afford an individual policy, by all means, look into one. If you can’t, take the group coverage. And if you need to invoke it, and you’re denied, appeal — the right way.
Here are a few tips:
- Gather and submit copies of your documentation, outlining your medical testing, treatment and prescription drugs, along with the required statement from your doctor proving your inability to work. Note that I said copies; keep the originals on file, since you’ll likely need them.
- If you can afford it, hire a vocational expert who can clarify your job demands. (“You better believe the insurance company has one,” says Darras.) You can find one through the American Board of Vocational Experts (abve.net).
- Get some help understanding the policy terms. If you can’t afford a lawyer, many — including Darras — offer free consultations. Beyond that, see if you qualify for assistance from an organization such as Legal Aid.
- Finally, know that if your claim is denied, you have the right to have it reviewed by your state insurance department. You can find contact information for your state through the National Association of Insurance Commissioners (naic.org).