10 More Legal Mistakes Professionals Make When
Filing a Claim for Disability (Mistake #4)
In an effort to provide professionals with more information about how the disability claims process works and identify some of the most common pitfalls for professionals filing disability claims, attorneys Ed Comitz and Derek Funk have compiled an updated list of the 10 most common mistakes we are seeing physicians, dentists, and other professionals make when they file claims under the new post-2000 generation of disability policies (which are much more complex and stringent than the policies sold to professionals in the 1980s and 1990s).
In this post, we’ll be looking at the common mistake of assuming you have a true “own occupation” policy, when in fact you have one of the new “own occupation” provisions that limit coverage and/or makes it harder for you to collect benefits.
Mistake # 4: Mistakenly Believing that They Have a True “Own Occupation” Policy
Most professionals know that they should purchase an “own occupation” policy that provides benefits if they are no longer able to practice their profession. In the past, these policies all contained virtually the same language, so it was easy for the agent to explain the coverage. What professionals don’t realize is that there are now several iterations of “own occupation” provisions and the differences are difficult to explain. Regardless, insurers market all of these as “own occupation” policies because they know that professionals are just looking for these two magic words. Unfortunately, the new policy variations typically contain additional requirements and limitations that restrict coverage and/or make it much more difficult to collect.
A true “own occupation” policy pays benefits if you cannot perform at least one of the material and substantial duties of your occupation and allows you to work in another occupation (that does not have any overlapping duties with your previous occupation). Under these policies, the insured is essentially allowed to “double-dip”—collect benefits under their policy and collect earnings from another occupation. These provisions used to be commonplace in the industry, but now you will likely need to specifically ask your agent for this type of coverage, and you may need to look into policies offered by multiple insurance companies before you find a true own occupation provision.
Some of the more common limitations and restrictions that are included in the new “own occupation” policies include: (1) “no work” provisions that only allow a claimant to collect benefits if he or she is not working in any capacity; (2) “work” provisions that require a claimant to be working in a new occupation before he or she can collect benefits; (3) provisions that offset the monthly benefit based upon the amount of income a claimant earns working in a new occupation; (4) provisions that require a claimant to prove that he or she is unable to perform all of the duties of his or her occupation; (5) provisions that require a claimant to prove that there are no workplace modifications that exist that would allow him or her to perform his or her prior occupation; and (6) provisions that initially provide “own occupation” coverage, but after a certain time frame (usually somewhere between 2 to 5 years) shift to an “any occupation” provision that only pays benefits if the claimant can demonstrate that he or she is unable to work at all, in any capacity, and allows the company to terminate benefits if they think the claimant could be working (even if the claimant is not actually working at the time).
Many of the professionals we consult with checked “own occupation” on their policy application but didn’t bother to read their full policy when it arrived, assuming that it contained true own occupation language. They are then surprised to learn that, upon closer inspection, although their policy contains the phrase “own occupation,” the policy that they have been paying premiums on for years does not actually provide true own occupation coverage.
Action Step: Read your policy carefully and fully understand the definition of total disability before filing a claim.
To read the rest of the 10 most common mistakes, click here.
To learn more about some of the tactics insurers use to deny claims and other mistakes to avoid, click here.
Don’t Owe Your Insurer Money – Be Aware of Overpayment Provisions
In previous posts, we’ve discussed how insurance companies typically place caps on how much disability coverage a policyholder can receive. For physicians and dentists, this typically results in monthly disability benefit amounts that are lower (and sometimes much lower) than the monthly income you would bring in if you were still able to practice.
In some cases, policyholders are able to supplement their income by working in another field, but this is only possible if your disability insurance policy allows you to work in another occupation. Alternatively, your policy could contain a “no work” provision, which would foreclose this as an option. And some newer policies even require you to be working in order to collect disability benefits, so you don’t have a choice–you must find another job if you want to receive your disability benefits each month.
If you are not able to work in another occupation, due to the nature of your disabling condition and/or the contractual terms of your policy, you may be placed in a position where you must either cut expenses, find another source of income, or both. If you find yourself in this unenviable position, or you are planning ahead and contemplating what you might do in this sort of situation, you will want to keep in mind that some policies–particularly employer-sponsored plans–can contain offset provisions, which allow the insurance company to reduce your monthly disability benefit if you receive additional income from certain enumerated sources.
What Types of “Other Income” Can Be Offset?
There are many types of income that your disability insurer might include in an offset provision. Some examples include:
- Social Security benefits;
- Pension plans;
- Sick leave or a salary continuation plan of an employer;
- Income from other disability insurance policies;
- Retirement benefits funded by an employer;
- Workers’ compensation;
- Partnership or shareholder distributions; or
- Amounts paid because of loss of earning capacity through settlement, judgment, or arbitration.
The list above is by no means exhaustive and, again, you should carefully review your disability insurance policy for its specific list of offsets.
What are Overpayment Provisions?
If your disability insurance policy contains an offset provision, it will also likely contain an overpayment provision. In most instances, if your policy contains an offset provision, your insurer will be able collect information about your income from other sources prior to issuing the disability benefit, and calculate the amount due accordingly. However, in some cases this is not possible.
For example, say you applied for Social Security disability benefits. In some cases, it can take several years before a Social Security determination is made. Then, at that point, if your disability claim was approved, you would receive a lump sum of benefits covering the time period from the date of disability you reported to the date your claim was approved.
This is where the overpayment provision kicks in. If your policy has an overpayment provision, upon learning of the lump sum payment from Social Security, your insurer could potentially require you to pay the entire lump sum of benefits back to your insurance company (depending on the terms of your policy). This is because the lump sum payment represents several monthly payments you would have received over the relevant time frame. If your insurer paid the full monthly disability benefit for those months and your policy has an offset provision, your insurer will likely ask for the Social Security benefits as payment for the amounts that should have been offset each month over that time period.
What Happens if You Cannot Pay Back the Overpayment in a Lump Sum?
If you are not in a position to pay back an overpayment in a lump sum, your disability insurer will seek to collect the overpayment amount in other ways. One way is reducing and/or withholding future disability benefits until the full amount of the overpayment has been recouped by the insurer. Your insurer may also work out a payment plan with you, initiate collection efforts against you and/or file suit to recover the overpayment.
The Takeaway
Offset and overpayment provisions can be particularly devastating if you are caught unaware and find yourself with considerably less income than expected, or an obligation to repay a large sum to your insurer. When selecting a disability insurance policy, you should try and avoid these types of provisions if at all possible. If you already have a policy, you should read it carefully, so that you are fully aware of any offsets that could occur and any overpayments that you could potentially be responsible for under the terms of your disability policy.
The Devil Is In the Details: Long Term Disability Policies and Benefit Offsets
In a previous post, we discussed a feature of long-term disability insurance policies that is easily overlooked and frequently leaves policyholders feeling cheated and deceived by their insurer: the benefit offset provision. When a person signs up for a disability insurance policy, he or she expects to pay a certain premium in exchange for the assurance that the insurance company will provide the agreed-upon monthly benefit listed in the policy, should they ever become disabled. What many people do not realize is that some disability insurance policies contain language that permits the insurer to reduce the amount of monthly disability benefits it is required to pay if the policyholder receives other benefits from another source.
Worker’s compensation, supplementary disability insurance policies, state disability benefits, and social security are some of the most common “other sources” from which policyholders may unexpectedly find their disability insurance benefits subject to an offset. The frequency of offset provisions varies by policy type. They are more likely to appear in group policies and employer-sponsored ERISA policies, and are rarely found in individual disability insurance policies.
Benefit offset provisions can have significant and often unforeseen financial repercussions, as illustrated by the recent account of a couple from Fremont, Nebraska. As reported by WOWT Channel 6 News, Mike Rydel and his wife Carla were receiving monthly benefits under Mr. Rydel’s disability insurance policy with Cigna. Mr. Rydel had suffered a stroke in the fall of 2015 that had left him incapacitated and unable to work. The Rydels’ financial situation was made even more dire by Mr. Rydel’s need for 24-hour care, which prevented Mrs. Rydel from working as well.
In an effort to supplement his family’s income, Mr. Rydel applied for Social Security disability benefits. When his claim was approved, the Rydels expected a much needed boost to their monthly income. Unfortunately, due to an offset provision in Mr. Rydel’s policy, his monthly disability benefits under the Cigna policy were reduced as a result of the approved Social Security claim, and his family did not realize any increase in income.
The Rydels were understandably shocked when they were informed by Cigna that Mr. Rydel’s monthly disability insurance benefits would be reduced by the amount he was now receiving from Social Security, and that Cigna would be pocketing the difference. Perversely, the only party that benefited from Mr. Rydel’s SSDI benefits was Cigna, which was off the hook for a portion of Mr. Rydel’s monthly benefits. In response to an inquiry from WOWT, Cigna simply asserted that “coordination” of private insurance benefits and government benefits was a long-standing practice – an assurance that likely provided no solace to the Rydels.
The Rydels’ story highlights the importance of carefully reviewing every aspect of your disability insurance policy before signing. Benefit offsets, policy riders, occupational definitions, and appropriate care standards in your policy can significantly impact your ability to collect full benefits if you become disabled. You should review your disability insurance policy carefully to determine if it contains any offset provisions that may affect your benefits. If it does, you will need to take them into account when estimating your monthly benefits.
References:
http://www.wowt.com/content/news/Stroke-Victim-Suffers-Disability-Insurance-Set-Back-385758411.html
