24 Common Long Term Disability Terms You Should Know

Eligibility:? Who is eligible for what coverage (i.e., Class I: Officers, etc.)

Elimination Period:? When benefits begin after disability begins (normal is 90 or 180 days)

Trial Work Days:? A number of days which an employee can attempt to return to work on a full-time basis, without having to re-start the elimination period. Trial work days do not count toward the elimination period.

Basic Benefit:? Typically expressed as a percentage of monthly income. Most plans insure basic compensation only (however, bonuses, ?????? commissions, etc., can be added under most contracts).

Monthly Benefit Maximum:? The maximum monthly benefit that is allowed (payable at the basic benefit (%) level). Individuals whose benefits are "max'd out" should consider supplementing coverage through individual disability income insurance.

Maximum Duration:? This represents the maximum length of time that a claim will be paid (assuming disability continues), and is dependent on the age at which disability occurs. A scaling down of benefit years occurs at or around age 60 in accordance with the Age Discrimination in Employment Act (ADEA).

Total Disability "Own Occ":? The length of time that a carrier will consider a person to be disabled using their "own occupation" as the criteria for whether they are performing the material duties of their work. After the "Own Occ" period is exhausted, the carrier can look at "any occupation" which a person is reasonably qualified due to training, education or experience.

Partial/Residual Benefit:? In general, how a LTD contract provides an incentive for a disabled individual to return to work on a part-time basis and still receive an adjusted disability benefit.

20% Earnings Test:? Does the LTD contract require that a person's income drop by 20% or more to be considered disabled?

Indexing of Earnings Test:? How will the LTD contract adjust a disabled persons "pre-disability" income to ensure that "inflation" does not create a less than 20% loss of income. Typical is lesser of CPI % or 10%.

Type of benefit: There are two main types of return to work incentives.

1.?????? A "partial" benefit requires that the elimination period be met while the claimant is "totally disabled."

2.?????? A "residual" benefit does not require any period of total disability.

We recommend that a residual contract be used where available.

Integration of PT Earnings:? How the LTD contract will adjust the gross disability benefit to account for the fact that some part time income is being received. There are 4 main types:

1.?????? Proportionate Loss Formula: Determines what % of income is being lost and applies that percentage times the gross benefit to arrive at an adjusted benefit.

2.?????? 50%: Multiplies partial disability wages times 50% and reduces that amount from the gross LTD benefit.

3.?????? 70% MPL: (Fortis Benefits Ins. Co only) Replaces 70% of lost income.

4.?????? Progressive Partial: This differs by carrier, but is intended to replace up to 100% of pre-disability income from both return to work earnings and LTD benefit. This can make the progressive ?? partial one of the most comprehensive offset formulas available.

Integration Period:? After what period of time will the integration formula (from above) be implemented. The new industry standard is 12 months. Newer contracts are now using 24 months. During this time period, a disabled employee is able to earn up to 100% of pre-disability income (between their part-time wages and their gross LTD benefit. Any amount over 100% are not paid.

Child Care Expense:? A unique program which reduces a person's return to work wages by a limited expenditure for child care (if needed as a result of disability).

Rehab Incentive:? Will the carrier assist the disabled employee’s attempt to receive rehabilitation type of income where available?

COLA:??Cost of living adjustment in the benefit payable. Most plans do not include a COLA due to high expense of COLA.

Social Security Offset:? Illustrates how the LTD contract will reduce the gross benefit by Social Security benefits received by the disabled. There are two:

1.?????? Primary Only: Offsets for amount received by the employee for himself (does not include any dependent benefits).

2.?????? Primary and Family: Offsets for any amount of Social Security benefits received (for all family members).

*The industry standard is Primary and Family.

Minimum Benefit:? What will be paid out at the very minimum if a claim is considered payable, but there are enough offsets (i.e. Social Security, Worker's Comp, etc.) that normally no benefit would have been paid.

Psych Limitations:? Most LTD contracts will limit the amount of time that a person can claim disability benefits due to psychological reasons without being institutionalized/hospitalized. Most plans limit psychological benefits to 24 months. After that time, the claimant must be institutionalized for benefits to continue. However, many newer contracts will not include alcohol and/or substance abuse under the same limitations. These contracts include alcohol/substance abuse as any other claim.

Pre-Existing Condition Limits:? Most LTD contracts will subject either new entrants (or those not covered by a group's prior plan (in the case of a transfer of carriers)) to pre-existing condition limitations. This means that claims which begin during the pre-existing condition limit period are not covered. Most plans define a pre-existing condition as one which existed within the 3 or 6 months prior to coverage commencing. The normal pre-existing condition limit is then set for either 12, 18 or 24 months. *It is important to differentiate a disability plan's pre-existing clause from a health plan. Under a disability plan, the individual's claim cannot commence during the pre-X limit or it is not covered. Under a medical plan, the claim is covered after the pre-X limit runs out.

Volume:? The amount of payroll covered under the disability plan. This is normally expressed per month.

Rate Guarantee:? How long the insurer will guarantee the final approved rate (after enrollment and underwriting review), subject to assumptions regarding group size, industry, demographic changes, etc.

Conversion:? Will the contract allow an individual who leaves the plan to purchase an individual conversion disability plan? Generally, no medical underwriting is required for these plans.

Survivor Benefits:? The length of time that disability benefits will continue to survivors in the event of a death of a claimant. Normally, the claimant must have received a minimum number of monthly payments first.