5 FAQs About Long-Term Disability

What is Long-Term Disability?

Long-term disability (LTD) is designed to provide financial support if you find yourself unable to work due to a prolonged illness or injury. While the premise sounds straightforward, many intricacies can make or break a claim. Whether you’re considering an LTD policy or are already covered and have questions, this post is for you. We’ll dive deep into LTD in Michigan and tackle the five most frequently asked questions to help you understand and maximize your benefits.

How Does LTD Insurance Work?

Long-term disability insurance provides a percentage of a person’s income if they become unable to work due to illness, injury, or disability over an extended period. The specifics of LTD policies can vary based on individual plans and providers, but the following provides a general overview of how long-term disability insurance works in Michigan:

Eligibility

To be eligible for benefits, the insured must typically satisfy a waiting or “elimination” period. This period, which can range from 30 to 180 days (or more), is the amount of time one must be disabled before receiving LTD benefits. The disability must meet the policy’s definition of disability, which can vary. Some policies require that the insured is unable to perform any job, while others pay if the insured can’t perform the duties of their specific occupation.

Coverage Amount

LTD benefits usually range between 50% to 70% of the insured’s salary.

The actual benefit amount and duration will depend on the specific terms of the policy.

Duration of Benefits

Some policies provide benefits for a specified number of years, while others might provide benefits until a certain age (e.g., 65 years).

Premiums

The cost of LTD insurance can vary based on several factors including the insured’s age, health, occupation, the percentage of salary covered, and the length of the benefit period.

Many employers offer LTD insurance as a benefit to employees. In some cases, the employer pays the full premium, while in others, the cost is shared between the employer and employee.

Tax Implications

If the premiums are paid with after-tax dollars, the benefits received are usually tax-free.

If the employer pays the premiums or if they’re paid with pre-tax dollars, the benefits are generally taxable.

Exclusions and Limitations

Most policies have exclusions, such as disabilities arising from pre-existing conditions, self-inflicted injuries, or acts of war. Many LTD policies will have limitations on benefits for certain conditions, such as mental health disorders. It’s common to see a 24-month limitation for these types of disabilities.

State Regulations

While LTD insurance is primarily regulated at the state level, Michigan doesn’t have unique LTD regulations distinct from most other states. Instead, Michigan would apply general insurance regulations and consumer protections to LTD insurance products.

Social Security Disability Insurance (SSDI) Offset

If the insured receives Social Security Disability Insurance benefits, the LTD benefits may be reduced by that amount. It’s a common provision in LTD policies to prevent “double-dipping.”

Regular Medical Reviews

While receiving LTD benefits, the insurer may periodically request medical documentation or examinations to confirm the ongoing disability.

Return to Work Provisions

Some policies may have incentives or provisions that allow or encourage the insured to return to work in a limited capacity, potentially offering partial disability benefits if the individual earns less than before the disability.

Filing a Claim

If one believes they are eligible for LTD benefits, they should notify their insurance provider and submit a claim. This often involves providing medical documentation and other relevant information.

If considering or relying on LTD insurance in Michigan, it’s crucial to carefully review policy terms and seek advice from professionals, as individual policy specifics and provisions can vary widely.

Who Should Have LTD Insurance?

While anyone can potentially benefit from LTD, certain groups of people might find it more crucial than others. While state-specific details might affect some decisions, here’s a detailed look at who should consider having long-term disability insurance:

Individuals Without Significant Savings: If you don’t have enough savings to cover your living expenses for an extended period, LTD can serve as a financial safety net. A prolonged absence from work without a backup income source can deplete savings quickly.

Primary Income Earners: If you are the primary or sole breadwinner for your family, the loss of your income due to disability can be financially devastating. LTD can provide essential financial stability in such situations.

Self-Employed Individuals: Those who own their businesses or work freelance don’t have the benefit of employer-provided disability insurance. For them, purchasing individual LTD can be especially vital to protect their income.

Professionals with Specialized Skills: People in professions requiring specialized skills or training (e.g., doctors, architects, engineers) may find it difficult to transition to another job if they become disabled. LTD policies that cover “own occupation” can be beneficial for them. This means they’ll receive benefits if they can’t perform their specific profession, even if they might be able to do some other job.

People Without Employer-Provided LTD: While many employers offer some form of disability insurance, not all do. If your employer doesn’t provide LTD or provides only short-term disability, it’s wise to consider getting your own policy.

Individuals in Physically Demanding Jobs: People in professions with higher physical demands, like construction workers or manual laborers, are at a greater risk of injury. For them, LTD can be a crucial safeguard.

Those with a History of Medical Issues: If you or your family have a history of chronic illnesses or health conditions that might cause long-term disability in the future, considering LTD is prudent.

People Without Other Disability Benefits: If you don’t have access to other disability benefits, such as through union membership or military service, an LTD policy can fill that gap.

Individuals with Dependents: If you have dependents like children, elderly parents, or a non-working spouse, the financial impact of your disability could be even more significant. Having LTD ensures they are provided for during such times.

Young Workers: Disability isn’t just an issue for older adults. According to the Council for Disability Awareness, over one in four of today’s 20-year-olds will become disabled before retirement. Young workers should consider LTD as a preventive measure.

How Much Coverage Should I Have?

Determining the right amount of LTD coverage requires a comprehensive assessment of your financial needs, potential future changes, and personal comfort level. The appropriate amount of long-term disability insurance coverage depends on an individual’s financial circumstances, responsibilities, and risk tolerance. However, there are general guidelines that can help individuals determine an appropriate coverage level:

a. Income Replacement Ratio: Most financial advisors recommend that your LTD insurance should replace between 60% to 80% of your gross pre-disability income. This range is suggested because disability benefits are often tax-free if the premiums were paid with after-tax dollars, allowing the net benefit to be closer to your take-home pay. However, if your employer pays the premium or it’s paid with pre-tax dollars, the benefits are typically taxable.

b. Consider Fixed and Variable Expenses: Start by estimating your monthly expenses, including housing (mortgage or rent), utilities, groceries, transportation, healthcare, loan repayments, and any other regular obligations. Then, factor in other potential expenses that might arise due to the disability itself, such as medical treatments, medications, therapy, or home modifications. Your LTD benefit should cover these monthly expenses, with a little cushion for unexpected costs.

c. Duration of Coverage: It’s also important to consider the benefit period or how long the policy will pay out. Common options include two years, five years, or up to retirement age (often 65). A policy that provides benefits until retirement age is ideal, as it ensures continued income support if the disability is permanent. However, such policies are more expensive than those with shorter benefit periods.

d. Consider Other Income Sources: If you have other potential sources of income during a disability (e.g., savings, spouse’s income, other insurance policies, or Social Security Disability Insurance), factor these into your calculations. You might need less coverage if you have significant alternative resources.

e. Cost of Living Adjustments (COLA): Some policies offer COLA riders, which adjust your disability benefit based on inflation. This ensures that your benefits keep pace with the rising cost of living, especially crucial for younger individuals who may have many years ahead of potential inflation erosion.

f. Future Income Potential: Especially for younger professionals or those in rapidly advancing careers, it’s important to consider future earning potential. If your income is expected to rise significantly in the coming years, you might want to secure a policy that accounts for that or offers a rider allowing you to increase coverage without further medical underwriting.

g. Own Occupation vs. Any Occupation: “Own occupation” policies pay benefits if you’re unable to perform the duties of your specific occupation, while “any occupation” policies pay only if you’re unable to work in any job suitable to your education and training. The former provides broader coverage but is more expensive. Consider your profession, the likelihood of finding work in another field if disabled, and your willingness to change professions when deciding between these policy types.

h. Emergency Fund: If you have a substantial emergency fund saved up (e.g., 6-12 months of expenses), you might opt for a longer waiting period before benefits kick in, which can reduce the premium costs. However, ensure you can cover your expenses during this waiting or elimination period.

What Is the Difference Between the Elimination Period and the Benefit Period?

When discussing long-term disability insurance, the terms “elimination period” and “benefit period” refer to distinct aspects of the policy’s structure and payout timeline. The elimination period determines when the benefit payments start after a disability, and the benefit period defines how long those payments will continue. Both play crucial roles in shaping the coverage level and the policy’s cost, and both should be carefully considered in the context of one’s overall financial and health situation. Here’s a detailed explanation of each:

Elimination Period:

Definition: The elimination period, often referred to as the “waiting” or “qualifying” period, is the span of time that must pass after the onset of a disability before the insured can begin receiving disability benefits from the policy.

Purpose: This period acts similarly to a deductible in other types of insurance, in that the insured must “cover” their income during this period, often using savings, sick leave, or short-term disability benefits.

Duration: Elimination periods can vary widely, with common durations being 30, 60, 90, 180, or even 365 days. Typically, a longer elimination period results in a lower premium because the insurance company is taking on less risk.

Considerations: When choosing an elimination period, it’s essential to balance the cost savings of a longer elimination period with the financial strain of covering a longer duration without the benefit payments. For many, a common choice is 90 days, but individual financial situations and other coverage (like short-term disability or ample savings) can influence this decision.

Benefit Period:

Definition: The benefit period refers to the maximum length of time for which disability benefits will be paid out to the insured once the elimination period has been satisfied.

Purpose: This defines the coverage’s longevity. If an individual remains disabled after the elimination period, they will continue to receive benefits for the duration of the benefit period or until they are no longer deemed disabled, whichever comes first.

Duration: Common benefit periods in LTD policies include two years, five years, 10 years, or until retirement age (often defined as age 65 or 67). Some policies even offer benefits that last until the age of 70 or for life, though these are less common and typically more expensive.

Considerations: A longer benefit period provides more extended protection but usually comes with higher premiums. Individuals need to weigh the potential risk of a long-term disability against the cost and their other financial resources when deciding on the benefit period.

How Do I File an LTD Claim?

Filing a long-term disability claim in Michigan largely follows the same process as in other states, since LTD insurance is often governed by either federal law (particularly if it’s an employer-sponsored plan under the Employee Retirement Income Security Act, or ERISA) or the terms of the individual policy. Here’s a general step-by-step guide on how to file an LTD claim in Michigan:

a. Consider Legal Counsel: You may face challenges in the claim process, especially if your claim is denied. Consider consulting with a disability attorney familiar with Michigan’s regulations and ERISA (if applicable). They can guide you through the appeal process and help ensure your rights are protected.

b. Notify Your Employer: If your LTD insurance is through your employer, inform your HR department or supervisor of your situation as soon as possible. They can guide you through the company-specific process and provide necessary claim forms.

c. Review Your Policy: Thoroughly review your LTD policy to understand the terms, conditions, definitions of disability, required documentation, and timelines. This will help you prepare your claim and know what to expect.

d. Obtain Claim Forms: You’ll need to get the appropriate claim forms. These are typically provided by the insurance company, either directly or through your employer.

e. Complete Your Portion of the Forms: Carefully fill out your section of the claim forms, providing detailed and accurate information. This might include information about your occupation, income, medical condition, and treatment.

f. Medical Documentation: Your healthcare provider will need to complete their portion of the claim forms. This section will ask for details about your diagnosis, treatment plan, and the functional limitations that prevent you from working. It’s essential to maintain regular medical visits and follow your doctor’s treatment recommendations. Insurance companies will look for consistent and comprehensive medical documentation to support your claim.

g. Additional Documentation: You may need to provide other supporting documents, such as statements from coworkers or supervisors, records of your job duties, or evidence of previous accommodations made for your condition.

h. Submit the Claim: Once all forms and documentation are prepared, submit your claim to the insurance company. Make sure to keep copies of everything you send and note the date of submission. It’s a good practice to send documents using a method that provides delivery confirmation.

i. Stay in Communication: The insurance company might reach out for additional information or clarification. Promptly respond to any requests to avoid unnecessary delays.

j. Decision on the Claim: After reviewing your claim, the insurance company will either approve or deny it. The decision timeframe can vary but is typically within 45 days for ERISA-governed plans, with the possibility of extensions in certain situations. If approved, you’ll receive benefits after the elimination period specified in your policy. If denied, the insurance company must provide a written explanation. You have the right to appeal the decision, and the appeal process should be outlined in the denial letter.

Remember, each LTD policy may have nuances and specific requirements, so always refer to your policy documentation and consider seeking professional guidance, like J.J. Conway, when filing a claim.

Choosing the Best Long-Term Disability Attorney

Selecting the best long-term disability attorney is pivotal in navigating the complexities of disability claims, ensuring your rights are safeguarded, and guaranteeing that your questions are answered with your best interests in mind. When making this choice, prioritize attorneys who specialize in disability law, possess a deep understanding of both state-specific and federal regulations, and have a proven track record of successful claims and satisfied clients. Personal recommendations, online reviews, and initial consultations can offer insights into their expertise and approachability. Remember, this legal representative will be your advocate in a challenging journey, so choose someone who not only brings the right experience but also resonates with your personal needs and comfort. With the right attorney by your side, you enhance your chances of a favorable outcome and reduce the stress of the process. To contact the experienced team at J.J. Conway Law, fill out our form or call us today to schedule a free consultation.