What Really Counts As Being Disabled?
As I said on the LTD home page, when looking for a definition for disability, the disability insurance coverage is "tricky."
That's because disability is tricky. What's disabled for an accountant might not be disabled for a salesman. And what about a line worker? Executive?
Each has different demands on their time, requirements of their jobs, limitations on their performances; each has a different definition for disabilty.
But the carriers have to write one contract to cover everyone... that's why it becomes tricky.
You can't just compare Carrier A with Carrier B and buy the cheapest. What one carrier considers a disability another may not, so you have to be careful.
The Two Kinds of Limitations on Definition for Disability
There really are two kinds of limitations placed on whether or not an employee will collect a disability benefit.
- "Hidden" limitations inserted by the carrier into the contract, and
- Provisions that employer management chooses to insert to control costs or to reflect the makeup of their particular group.
As HR Manager, CFO or CEO, you may know about limitations that are already present in your current plan. (Hopefully you do!) There's nothing wrong with that -- I want to emphasize that I'm agnostic on these issues. As the employer, if you choose to add limitations to hold down cost, that's your decision. Better to have an affordable plan, even with some limitations, than to have no plan at all.
But we're going to talk about selected-by-you limitations in another area. That's a controlled decision, made by you.
In this section, we're just going to talk about the limitations the carriers place on your policy -- you need to be aware of them, or you'll end up with that pig wearing that cute little "poke" on the main LTD page.
And candidly, that does frost me when carriers don't tell the employer about the limiting language of their contract or brokers don't bother to find out.
That's when you get hung out to dry. . . when your employee is disabled and can least afford it.
I estimate that more than half of newly adopted plans or those with a new carrier in the past five years have limitations no one knows about.
How can this be? Are those dirty insurance companies just trying to pick our pockets again? Not really. Oh, I'll admit that carriers aren't interested in paying anything they don't have to pay, and some brokers can only sell the lowest price, so they don't talk about limitations. But, in fact, the limitations A) are generally optional, B) can help control unnecessary costs, and C) were added to protect against the cheats out there. Workers who are disabled but can go golfing and do yard work cost us all money.
Different Methods of Limitation
Carriers impose limits two ways. The first is via blanket exclusions on "mental and nervous" conditions or "alcohol and substance abuse." The second -- and fairer -- way is to identify the specific conditions that are excluded so truly uncontrollable conditions can be without limits. For instance, if your drug dependency is the result of a prescribed drug therapy or psychotropic drugs, you're not limited to two years. Likewise, there's no limit if you have Alzheimer's.
Your broker's job is to understand exactly what carriers limit and how they word their limits. S/he should have a thorough understanding of each carrier's contract (a never-ending pursuit for the broker, let me tell you). Since the cost of long-term disability coverage is fairly low -- almost always less than one percent of payroll -- the differences between Carrier A's price and Carrier B's may be more than justified.
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