Tag Archives: financial interests

Are Benefits Taxable?

 

The Answer Is: It Depends

Whether your disability benefit payments are taxable depends on what type of policy or plan you have and how your premiums are paid.  This post is not intended as tax advice—we’ve outlined some basic information below only.  You should always speak with a tax professional regarding your particular situation.

Individual Policies:  These are policies that you purchase yourself.  Generally speaking, if you pay the premiums with after-tax dollars, the benefits you receive are tax free.  However, if you pay with pre-tax dollars or deduct your premiums as a business expense, then your benefits will likely be subject to federal income taxation.

Group Policies: Group policies are those offered through associations such as the ADA or AMA.   These types of policies offer special terms, conditions, and rates to members and function much like individual policies, with similar tax consequences.  Generally speaking, if you pay the premiums (with after-tax dollars) then the benefits you receive are tax free.

Employer-Sponsored Policies: These types of policies can be less straightforward when it comes to taxes, as the payment of premiums can be structured several ways.  According to the IRS website:

  • If your employer pays the premium and does not include the cost of the premiums in your gross income, then benefits you receive will generally be fully taxable.
  • If the employer only offers a policy, but you pay the entire premium without taking a tax deduction, then the benefits you receive will generally be tax-free.
  • If both your employer and you pay the premiums then the tax liability will generally be split.

If you are unsure what type of policy or plan you have, and you think your employer might be paying the premiums, you can look at your application (there is typically a portion that states who is responsible for the premiums) or talk to your HR department.  For more information, talk to your accountant.  You can also go to to the IRS website on disability insurance proceeds to find additional information.

It may be tempting to save money by enrolling only in a plan solely paid for by your employer, paying premiums with pre-tax dollars, or deducting premiums as business expenses.  But keep in mind that, if you do become disabled, the amount of your benefits actually available to you will substantially decrease if you are required to pay income tax on them.

Selecting a policy is an important decision, and how benefits will be taxed is a significant factor to consider. With statistics showing that one in four dentists will be disabled long enough to collect benefits at some point in their careers, choosing to save now could hurt you financially down the road.

Disability Claim Investigation: What Can My Insurance Company Do?

What your disability insurance company can do when it is investigating a claim largely depends on your specific circumstances and the language in your policy, but there are some common tactics that Arizona courts will often allow – and some they will not.

What the disability insurance company can do

  1. Audit your tax returns and billing records
  2. Review your medical files
  3. Use a private investigator to conduct video and photograph surveillance
  4. Look at your public Facebook profile and pictures
  5. Follow you on Twitter
  6. Order an Independent Medical Exam
  7. Have an insurance company doctor opine about your disability
  8. Ask for a Functional Capacity Evaluation
  9. Contact your treating physician
  10. Schedule face-to-face interviews with you
  11. Interview your family, friends, co-workers and employees
  12. Demand precise quantifications of your time spent in every professional activity pre- and post-disability
  13. Pay your claim under a reservation of rights

What the disability insurance company cannot do

  1. Impose requirements on you that are not in your policy
  2. Attempt to influence the opinions of independent medical examiners
  3. Misrepresent policy provisions
  4. Conduct abusive interviews
  5. Unfairly delay a decision on your claim
  6. Fail to conduct a timely, adequate investigation of your disability claim
  7. Destroy key documents
  8. Lie about actions taken on a claim
  9. Place their financial interests ahead of your contractual rights
  10. Force you to litigate by offering an unreasonably low lump-sum buyout

When it comes to claims investigation, disability insurance companies often skirt the limits of what they can legally do. If you think your insurer might be acting in bad faith, contact an attorney to protect your disability benefits.