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.

MetLife to Exit Individual Disability Insurance Market

MetLife, Inc. the fourth largest provider of long-term disability insurance by market share[1], is suspending sales of its individual disability insurance policies.  In an internal memorandum to producers, MetLife Client Solutions Senior Vice President Kieran Mullins announced that the company would be suspending the individual disability insurance block of business effective September 1, 2016.  In the memo, Mr. Mullins cites the goal of creating a new U.S. Retail organization for its insurance products and the “difficult, but strategic” decisions that led to the shutdown of their individual disability insurance product:

This was not an easy decision to make, given the growth and strength of our IDI business. However, we believe it is the best course of action for the immediate future. While there is tremendous opportunity in this market, the suspension provides us with the time and resources needed to properly separate the U.S. Retail business from MetLife. There is a significant amount of work to be done to retool existing systems – and implement new systems – that will ultimately provide the most value to our customers and sales partners in the years to come.

Insurance news websites are already speculating that the shutdown could put pressure on the remaining thirty-one companies selling individual disability insurance to raise premiums.  Because MetLife controls such a substantial share of the individual disability insurance market, their departure effectively reduces the size of the pool in which the risk can be spread.  Cyril Tuohy, writing for Insurancenewsnet.com, points to the move as an opportunity for the remaining companies in the market to innovate and attract the business MetLife will be leaving behind.  The company’s departure will favor the insurers whose individual disability policies cater to physicians, dentists, and other high-income professionals, such as Guardian, Principal, The Standard, Ameritas and Northwestern Mutual.[2]

In an accompanying FAQ, MetLife assured producers that existing policies would not be affected by the change, and that they would continue to support policy increases by the terms of the Guaranteed Insurability Option, Automatic Increase Benefit, and Life Event riders.  The memo also noted that MetLife would continue sales of its group, voluntary, and worksite disability products.

It is important to remember that even though MetLife must continue to service its existing policies, shutting down sales of new policies can still affect current policyholders.  Absent the need to sell new policies, an insurer may have less incentive to provide customer service or avoid a complaint from the state insurance board.  Additionally, once a block of business closes, the easiest way to maintain profitability of that product is through claims management.  In real terms that is typically accomplished through claims denial and benefits termination.  We discussed these very tactics in a 2012 blog post about Unum’s management of its closed block of individual disability insurance products.

If you have a MetLife individual disability insurance policy, pay close attention as the business focus shifts away from selling new policies and toward the management of existing policies.  If you have a question or concern regarding your MetLife policy, contact our office.

[1]http://www.statista.com/statistics/216499/leading-long-term-disability-insurance-carriers-in-the-us/

[2]“Will MetLife’s Suspension Send DI Prices Soaring?” Cyril Tuohy, insurancenewsnet.com. http://insurancenewsnet.com/innarticle/agents-split-di-pricing-wake-metlife-suspension

Disability Insurance Policies: Which type do you own?

The type of disability insurance policy you have can affect the benefits you receive and the legal rights to which you are entitled. Below is an overview of the basic types of disability insurance policies.

Individual Disability Insurance:

As the name suggests, individual disability insurance policies are purchased by individuals directly from the carrier and provide long-term disability benefits in the event of sickness or injury. Individual polices fall into two categories: “general” and “occupational.” A “general” disability policy insures against sickness or injury that precludes the insured from performing all work while an “occupational” policy provides relief if the insured cannot perform the material and substantial duties of his or her own occupation. Thus, an “occupational” policy will provide greater coverage to the insured, who will be entitled to benefits even if he or she is able to engage in another occupation. Individual policies usually provide coverage in set amounts, e.g., $5,000 per month, rather than as a percentage of the insured’s salary.

Group Disability Insurance:

Group disability insurance polices are made available to participants of organizations, such as members of the American Medical Association. Unlike most individual policies, group policies typically confer benefits calculated as a percentage of the insured’s base salary, usually from 50-75%. These policies may limit the maximum amount of benefits payable, e.g., no more than $5,000 per month, regardless of base salary. Further, group policies often reduce benefits when the insured receives income from other sources such as Social Security disability benefits or worker’s compensation.

Employer-Sponsored Disability Insurance:

Employer-sponsored disability insurance policies are typically the least expensive policies and are similar to the “group” policies described above, providing employees with disability insurance based on a percentage of their base salary as part of the employer’s overall benefits package. Unlike group policies, however, employer-sponsored policies are governed by the Employee Retirement Income Security Act of 1974 (ERISA), which has significantly affected the administration and litigation of disability insurance claims. Unfortunately, ERISA deprives insureds of significant rights to which they would normally be entitled under state law. These include the right to a trial by jury and the possibility of punitive damages where the carrier has acted unreasonably or maliciously.

Ed Comitz – My Own Story

Living an active lifestyle has always been important to me. It was not until I suffered a severe neck and head injury that I wondered if I would ever be able to enjoy sports or be active again.

Within months of my injury, I began experiencing constant, agonizing pain in my neck and shoulder, lost manual dexterity and fine manipulation skills with my left hand, and had difficulty moving, all of which caused a precipitous decline in the quality of my life. I felt physically distressed – as if I were constantly being injured.

MRI’s revealed two large disc protrusions. From there, I embarked on a year-and-a-half journey of treatment options without success: sports medicine, physical therapy and rehabilitation programs, consults at the Mayo Clinic and throughout the country, surgical consults, multiple epidural injections (interlaminar and transforminal), facet injections, trigger point injections, massage, chiropractic, traction, Ibuprofen and muscles relaxers. Despite my unrelenting commitment to get better, my condition unfortunately progressed to the point where the entire left side of my body was enormously tense, including my hip, leg and foot. I started losing proprioception in my foot and ambulated with an irregular gait, and my functionality was becoming worse by the day.

This was enormously shocking. I then consulted with another neurosurgeon and had more MRIs, which now revealed possible spinal cord involvement. I was admitted to Barrow Neurological Institute, where I underwent a multi-level discectomy and fusion. I have spent over a year rehabilitating and the process has been self-revealing, always too slow, but with significant progress over time. I now enjoy skiing, playing tennis, hiking, biking, swimming and jogging in moderation. While I have improved exponentially since the surgery, I still have limitations and struggles, and know that my condition can be aggravated if I do not take very good care of myself.

Most of my clients are physicians and dentists, and many have conditions similar to mine. As an attorney, I can keep working – if I drop a pen or get a cramp in my side, I can take a break or stretch, then resume working.  If I were a medical professional, though, I would not be able to sustain positioning for long periods of time, each and every day, and would be concerned about patient safety.

I am strongly committed to my clients and practice, am sympathetic to physical limitations and restrictions that others may not fully understand, and use my experience to provide my clients with the results they deserve.  My firm, Comitz | Beethe, provides representation to professionals nationwide and throughout metropolitan Phoenix, Scottsdale, Tucson, Flagstaff and Yuma.

Comitz | Beethe: Proud in its Continuing Support of the Western Regional Dental Convention

Ed Comitz and Phoenix-based Comitz | Beethe were pleased to show our continuing support for the Arizona dental community by participating in this year’s Western Regional Dental Convention held in Phoenix, Arizona.  Dentists, orthodontists, oral surgeons, pediatric dentists, endodontists, periodontists, prosthodontists, oral pathologists,  dental hygienists, dental practice administrators and others gathered at Arizona Convention Center for two-and-half days of continuing education. Attorney Ed Comitz’s topic at the Convention was ”Disability Insurance Litigation and the Disabled Dentist,” which has been written on extensively in Inscriptions.

Comitz | Beethe: Solid Record With All Major Disability Insurance Carriers

Phoenix-based Comitz | Beethe and its attorneys have resolved cases in Arizona and nationally with all of the leading disability insurance companies and third-party administrators  in the country, including, among many others: Berkshire, Boston Mutual, CIGNA, Disability Management Services (“DMS”), Disability Reinsurance Management Services (“DRMS”), Equitable, First Unum, Great-West Life and Annuity Insurance Company, Guardian, The Hartford, Integrated Disability Resources, Jefferson Pilot, Liberty Mutual, Lincoln Financial, Mass Mutual, Met Life, Monarch, New York Life, Northwestern Mutual Life, Paul Revere, Penn Mutual, Provident, Prudential, Reassure America Life Insurance Company, Reliance, Royal Maccabees, Standard, Swiss Re, and Unum (formerly UnumProvident).  We have also litigated and resolved cases against third-party vendors of insurance companies, including Behavioral Medical Interventions (BMI) and PsyBar.

Planning for Possible Health Problems: How Much Disability Insurance Should You Have?

As Chris Clark writes in a DoctorPlanning.com article “Planning for Possible Health Problems: How Much Disability and Long-Term Care Insurance Should You Have?”, health problems are one of the most common reasons people retire before they intended.  But knowing how much and which disability and long-term care coverages to purchase can be complicated.  Disability attorney Ed Comitz provides some advice in Mr. Clark’s article:

Edward Comitz, an attorney who leads the health and disability insurance practice for Phoenix law frm [Comitz | Beethe], recommends buying individual policies instead of the typically cheaper group ones, because employer-sponsored plans are subject to employment-law restrictions that include limits on jury awards if a claimant ends up in court fighting for benefits.

And don’t pay the premiums from the practice, he says, because an individual policy could be characterized as a group one if the practice is paying the bills.

The full article is available here:  Planning for Possible Health Problems

Ed Comitz Presents To NorthStar Resource Group at Sanctuary Resort and Spa

At NorthStar’s Annual Convention in Paradise Valley, Arizona, Attorney Ed Comitz presented the topic, The Top 10 Mistakes Physicians Make When Buying Disability Insurance, attended by a full house of investment advisors. A portion of the discussion was directed at current disability insurance claim practices, the difficulties physicians have when filing disability claims, and current issues relating to the application of disability insurance law to professionals in Arizona and elsewhere.

A Disability Insurance Q-and-A

Phoenix and Tucson-area disability attorney Ed Comitz recently responded to some common disability insurance questions  for the Pima County Medical Society’s January 2010 issue of Sombrero. He answers questions doctors and other healthcare professionals often ask,  such as, “What is the difference between ‘own occupation’ and ‘any occupation’ in disability insurance?” and “Why do so many doctors’ claims get denied, and how can a law firm help?”

Ed Comitz Interviewed For PHYSICIANS PRACTICE Magazine

Columnist for the Chicago Tribune and freelance writer Janet Kidd Stewart interviewed Ed Comitz regarding his advice for physicians when purchasing disability insurance policies.  The interview focused on physician disability claims, issues with coverage, the types of physician policies available, and examples of situations where physicians have been denied coverage.   Purchasing the right policy is the first step in risk avoidance.  Ms. Kidd Stewart’s article, “Planning for Possible Health Problems – How Much Disability and Long-Term Care Insurance Should You Have?” appeared in the January 2010 issue of Physicians Practice magazine.

Sun Life Facing Proposed Class Action in Michigan Over Discretionary Clauses in Disability Policies

A suit filed by a disabled woman with a severe back injury alleges that Sun Life Assurance Company of Canada violated Michigan’s insurance reforms by including discretionary clauses within its policies.   The discretionary clauses provide insurers with considerable leverage when considering payment of a disability claim, allowing them to deny the claim provided that their decision is not arbitrary and capricious, a very low standard easily manipulated to boost company profitability.

The full article is available here:  Sun Life Facing Proposed Class Action

Disability Benefits Terminated Due to Facebook Photos

The Canadian Broadcasting Corporation has reported that Nathalie Blanchard, who had been on long-term disability leave from her job at IBM due to depression, had her benefit payments terminated after she posted photographs of herself on Facebook that depicted her vacationing, having fun at Chippendale’s and enjoying her birthday party.  Her insurer, Manulife, confirms that it uses Facebook as a tool for investigating its insureds.   Ms. Blanchard contends that her doctor advised her to engage in fun activities to combat depression.   The story is a reminder to insureds to be aware of insurance company surveillance.  The CBC’s full article can be read here:  Depressed Woman Loses Benefits Over Facebook Photos and a CNN video on the story can be viewed below.

Business Partners: AOMA and Comitz | Beethe

The Arizona Osteopathic Medical Association proudly endorses Comitz | Beethe as a preferred law firm for its membership, particularly in the areas of disability insurance and healthcare litigation.  Mr. Comitz represents disabled doctors who are applying for, or who have been denied, their disability insurance benefits.

New York Times Exposes Biased and Incompetent “Independent Medical Examiners”

Embedded below is a video and New York Times article dated  March 31, 2009, exposing the biases and lack of competency of certain “independent medical examiners” used to deny disability claims.

By N. R. KLEINFIELD, New York Times

Dr. Hershel Samuels, an orthopedic surgeon, put his hand on the worker’s back. “Mild spasm bilaterally,” he said softly. He pressed his fingers gingerly against the side of the man’s neck. “The left cervical is tender,” he said, “even to light palpation.”

The worker, a driver for a plumbing company, told the doctor he had fallen, banging up his back, shoulder and ribs. He was seeking expanded workers’ compensation benefits because he no longer felt he could do his job.

Dr. Samuels, an independent medical examiner in the state workers’ compensation system, seemed to agree. As he moved about a scuffed Brooklyn office last April, he called out test results indicative of an injured man. His words were captured on videotape.

Yet the report Dr. Samuels later submitted to the New York State Workers’ Compensation Board cleared the driver for work and told a far different story: no back spasms, no tender neck. In fact, no recent injury at all.

“If you did a truly pure report,” he said later in an interview, “you’d be out on your ears and the insurers wouldn’t pay for it. You have to give them what they want, or you’re in Florida. That’s the game, baby.”

Independent medical exams are among the most disputed components of New York’s troubled workers’ compensation system. Under that system, workers with bona fide injuries are entitled to medical care and replacement wages, usually paid for by their employer’s insurer.

The independent exams are designed to flush out workers who exaggerate injuries or get unnecessary care, and there is no question that some of that goes on. As a check on what a worker’s doctor determines, insurers are allowed to order an ostensibly neutral exam by a doctor they select and pay for. They do so regularly, with more than 100,000 exams conducted each year.

But a New York Times review of case files and medical records and interviews with participants indicate that the exam reports are routinely tilted to benefit insurers by minimizing or dismissing injuries.

“You go in and sit there for a few minutes — and out comes a six-page detailed exam that he never did,” said Dr. Stephen M. Levin, co-director of the occupational and environmental medicine unit at Mount Sinai Medical Center, who has been picked as the interim medical director at the compensation board. “There are some noble things you can do in medicine without treating. This ain’t one of them.”

New York uses independent medical examiners far more extensively than many states do, and critics say the practice adds to the mistrust in the system. The examiners’ opinions can empower an insurer to slash benefits, withhold medical treatment or stall a case. Workers say that psychologically, there is something particularly damaging about being dishonestly evaluated by a medical professional.

“I was in so much pain and felt so hopeless for so long,” said Carol Houlder, a substance abuse counselor who waited a year for surgery on her injured ankle to be approved. “Doctors see you’re in pain and say you’re not. How do they call themselves doctors?”

Many independent examiners are older, semiretired physicians who no longer treat patients, and claimants and lawyers have asserted that the memories and judgments of some of the doctors have at times been impaired by their age and frailties. The examiners do not need special training, only to have a state license and to be authorized in a specialty.

“Basically if you haven’t murdered anyone and you have a medical license, you get certified,” said Dr. Alan Zimmerman, 75, a Queens orthopedic surgeon who does the exams. “It’s clearly a nice way to semiretire.”

Some examiners see dozens of injured workers a day. Often the appointments are booked by brokers who help insurance companies find doctors. Some brokers are not registered with the state, as required, but there has been little enforcement of the rules. Continue reading “New York Times Exposes Biased and Incompetent “Independent Medical Examiners””