Long Term Disability is insurance that pays a monthly benefit if you are unable to work due to a non-work related disability. To qualify for a group policy, you must be a member of the group. Groups can be any organization that is not created for the purpose of purchasing insurance - such as an employer, union, or professional association.

Many employers offer Long Term Disability Insurance to full-time employees.

Should you become disabled for a period of 6 months or longer, this coverage can provide an important supplement to Social Security Disability Insurance (SSDI).

An employer with a Group Long Term Disability Insurance plan should provide each employee with a Summary Plan Description which provides details about the plan. The main provisions include the following, which are each discussed in other sections of this article:

• Eligibility   
• Probation Period   
• Pre-Existing Condition Provisions  
• Total Disability Definition  
• Whether the policy covers "partial disability" (also known as "Residual Benefits")
• The length of time from the disabling moment until payments begin (known as the "Elimination" or "Waiting" period)  
• The benefit amount, and maximum period during which it is paid   
• Maximum benefit period  
• Survivor Benefits  
• Offsets   
• What happens if you return to work and become disabled again  
• Mental and Nervous Limitation    
• Other Exclusions and Limitations   
• Rehabilitative Training   
• Waiver of Premium    
• Conversion Privilege   
• Insurance Company financial situation   

Most group long term disabliity income insurance policies contain an "initial enrollment period"  - a period during which you can enroll in a group plan without medical underwriting (an examination of your current and past health). This is usually a limited period of time after joining the group, or after the group coverage goes into effect. People who seek to enroll in a group plan after the initial enrollment period are usually subjected to medical underwriting which looks at a person's health condition.

There is no federal law which limits the period of time during which employers and/or insurance companies may exclude coverage for disability due to a pre-existing condition.

This is unlike health insurance in which the right to restrict coverage for people with an existing health condition is limited when you change jobs or insurance carriers by the federal law known as HIPAA.

Whether or not your benefits are taxed depends on how the premiums were paid. Either the premium or the benefits will be taxed, but not both. If your employer has been paying the premium, it is arguable that if you reimburse your employer with after tax dollars for premiums paid during the past two years, the income should not be taxable. It is advisable to consult with an attorney before attempting this transaction.  To learn more, click here.    

If you need to file a claim under a Disability Insurance Policy, see: Disability Insurance: Claims, and Disability Insurance: Appeals.

Employees: Generally only "active, full-time employees" are eligible for Long Term Disability coverage.

Full-time is usually considered to be 30 hours per week or more, but this may vary based on the type of industry in which you work.

People who are considering reducing their work hours as an "accommodation" need to pay attention to this provision and to not decrease their hours to the point that they lose this important coverage.

To learn more, see Reasonable Accommodation.

Other groups: Each group sets its own requirements for eligibility. For instance, a professional group may require that you are a specific type of professional, in good standing.

The Probation Period is the period of time between date of hire and the date you become covered under the benefits. A probation period can vary from none, to a few months, to up to five years.

Coverage usually begins on the first day of the month following completion of the Probation Period.

Each pre-existing condition provision includes two time periods: a "look back period" and a "pre-existing condition waiting period."

Look Back Provision

A look back provision determines which conditions are considered to be "pre-existing." Typical wording is something like: "A condition for which medical treatment or advice was rendered, prescribed, or recommended, or for which a reasonably prudent person would have sought treatment, within the six months prior to effective date of coverage."

Note the inclusion of the words: "for which a reasonably prudent person would have sought treatment" in the six months prior to the effective date of coverage. That makes it much easier for the company to exclude some conditions for which you never went to the doctor. In one recent case, a company tried to exclude HIV as pre-existing, because the claimant knew he was HIV positive for over eight years, but had chosen not to seek treatment as long as he remained asymptomatic. The insurance company argued that a reasonably prudent person who was HIV positive would go to the doctor at least every six months whether or not he had any symptoms.

Pre-Existing Condition Waiting Period

This is the period of time you must wait before you are covered for a pre-existing condition.

A pre-existing condition waiting period is usually one year. The period can be longer.

The practical effect of a Look Back Provision and a Pre-Existing Condition Waiting Period

To understand the practical effect of these two provisions when taken together, let's assume you have a plan with a Look Back Period of six months and a Waiting Period of twelve months.

Example 1. Suzie is being treated for diabetes. She takes insulin regularly and sees the doctor every three months. Because she had medical treatment in the six months before the coverage started, the plan will not cover a disability related to diabetes until Suzie has been covered under the plan for twelve months. If Suzie leaves work due to a diabetes-related disability after twelve months, the plan will pay benefits.

Note: If using this example, Suzie went on disability during the 12 months Pre-Existing Condition Waiting Period, but didn't file a claim until after the 12 months is up, her claim will still generally be excluded since the disability started during the pre-existing condition period.

Example 2. James had colon cancer which has been eliminated. James is not on medication. His last annual checkup was nine months ago. Since James didn't have a cancer-related charge in the six months before the coverage began, and there was no reason a prudent person would have seen the doctor during that time, cancer is not considered to be a pre-existing condition for purposes of his group disability insurance policy. Should cancer return, even in the first month of coverage, the plan will pay benefits to James.

A long term disability income policy pays benefits should you become totally disabled. This begs the question: how is "total disability" defined for purposes of these policies?

Generally, the following relate to a definition of "total disability" for purposes of long term disability insurance policies:

• You must be under the regular care of a licensed physician other than yourself.
• If your condition does not fit in the definition of Presumptive Disability, you must not be gainfully employed and must be unable to either perform your "own occupation" and/or "any suitable occupation." Most group policies use both definitions. For example, a policy may use "Own-occupation" definition during the first two years of disability, and apply the other definition after you have been disabled for two years.
• You are presumed to be disabled if you fit within the policy's definition of "Presumptive disability." For instance, you may be considered to be totally disabled if you lose use of two or more limbs or the total loss of sight.

Own-occupation

Under an "own-occupation" definition of disability, you are considered to be totally disabled if you are unable to perform the material (necessary) duties of your own occupation.

For example, if you are a switchboard operator and have polyps removed from your vocal cords, you are totally disabled because you can't speak on the telephone. Speaking on the telephone is clearly a material duty of your own occupation.

On the other hand, if you are a typist and occasionally cover the switchboard when the operator is at lunch or on breaks, you can still perform the "material" duties of your own occupation and would not be able to make a claim under this definition.

Any-suitable-occupation

Under an "any-suitable-occupation" definition of disability you are totally disabled if you are unable to perform the material duties of any occupation for which you are reasonably suited by education, training, or experience. As you can imagine, it is harder to be considered to be disabled under this definition than under an "own-occupation" definition of disability.

As noted immediately above, materiality and suitability go together. An example of being disabled so you can't perform your own-occupation is a surgeon with arthritis in her hands so that she can't perform surgery. On the other hand, if the definition is "any-suitable-occupation", she won't receive benefits because she is capable of teaching or consulting on surgery.

If our surgeon's policy had a provision that said she would only be paid during the first two years if she were unable to perform her own occupation, but then the definition changed to "any-suitable-occupation", she would receive benefits for two years, and then they would stop.

An insurance company's determination about disability can be appealed.

The elimination period is the period of time between leaving work on disability and the time when you start receiving payments.

Elimination periods generally range from ninety days to six months. There are plans with shorter waiting periods, and other plans with longer periods.

Many employers will design their plans so that one will start when another ends. For example: With many large employers, there will be sick leave, say of 7 days, during which employees are paid full salary and benefits. Then an employer's Short Term Disability plan may start after "8 days or end of sick leave, if later." The average short term disability plan then covers income for 3 - 6 months. At the end of that period of time, the provisions of the Long Term Disability Policy kick in.

Social Security Disability Insurance (SSDI) benefits start after a similar elimination period.

As a general matter, group Long Term Disability Plans will not pay full benefits if other disability payments are being made. Such other payments are called "offsets" or simply "other income." They are subtracted from the amount of benefit otherwise payable. There is generally a minimum the plan will pay, no matter how large the offsets.

Other Income which is generally offset

The plan will list what it considers to be other income. Other income sources generally include:

• State disability payments.
• Social Security Disability Insurance (SSDI).
• Disability payments from a pension or retirement plan.

For example: The plan pays 60% of salary. Your monthly gross income is $4,000 per month. You are entitled to an SSDI payment of $900 per month. While 60% of $4,000 is $2,400, the plan will subtract your SSDI payment of $900. While you will receive $2,400 (60% of your salary), but only $1,500 will come from the Long Term Disability plan ($2,400 - $900 = $1,500).

Income which will not be offset

Long Term Disability policies only offset income described in the policy.

No matter how much you earn from the following sources, they are generally not offset against the long term disability payments:

• Interest on bonds or savings account.
• Any income from investments.
• Lump sum payments such as a viatical settlement or court judgment.
• Capital Gains from stocks or sale of real property.
• Gifts.
• Payments by an individual disability income policy.

Minimum Monthly Benefit

There will almost always be a minimum benefit a Long Term Disability Policy will pay despite any other income you receive. It is usually either a flat amount such as $50 or a percentage such as: "10% of your normal benefit but no less than $100."

The benefit amount under group Long Term Disability plans is usually expressed as a monthly benefit which is a percentage of your salary, with a cap. A typical plan reads: a benefit in an amount equal to “60% of your Basic Monthly Earnings to a maximum monthly benefit of $5,000.”

Each plan defines the earnings on which the benefit is based. Generally, the earnings on which the benefit is based is your gross (not your take-home) salary at the time you became disabled. The definition will also state whether the earnings on which the benefit is based includes overtime, commissions, bonuses, etc. Generally these extra amounts are not included.

Sometimes a policy will have a survivor benefit which will provide an additional amount of benefits to a surviving spouse or significant other.

If there is such a benefit, benefits are payable to a survivor in the range of three to six months.

Some long term disability policies pay a partial benefit if you are able to do some work, but are unable to work full-time.

Usually the definition of "partial disability" is the same as the definition of total disability but it is changed to read "….you can perform one or more but not all material duties of ……… occupation." (For information on the definition of total disability, see: Total Disability Definition, above)

The amount of the benefit for partial disabilities is usually determined by a complicated formula. The goal is to pay a percentage of the total disability benefit that reflects the amount of reduction in your income.

For example: David is partially disabled. He is only earning 30% of what he used to earn (a 70% reduction in income). The partial disability benefit will pay 70% of what David would receive if he were totally disabled. So, if David's salary was $3,000 a month, and he would have received 60% of his salary if he were totally disabled, he would receive 42% (70% of 60%) or $1,260 for being partially disabled. When you add back the 30% he is still earning ($900) to the $1,260 he receives from the long term disability insurance company, he is receiving $ 2,160. If he were totally disabled he would receive only $1,800, 60% of $3,000.

This gets even more complicated if you have been on total disability for several years since most formulas will adjust your old income for inflation.

Most plans contain a provision to determine how a second claim is treated if it comes after the person who was away from work on disability has returned to work. This provision determines whether the second claim is a new claim and requires a new Elimination Period or whether it is considered part of the first claim so that benefit payments start immediately. (To learn more, see the Elimination Period, above.)

The typical provision will state that the second claim is a continuation of the first claim if:

• It is due to the same cause as the first claim, AND
• The time between the two periods of disability does not exceed a period of time, such as six months.

This means that:

• If you return to work but can't continue after being back at work for only four months, and the reason is because of the same diagnosis, the claim will be part of the first claim. Benefits will start right away.
• If you were disabled due to heart problems and returned to work , but the next week you get hit by a car and are disabled due to the accident, then you are faced with a new claim because the cause is different. The Elimination Period must be met all over again.

NOTE: The provisions of an insurance policy are not set in stone. You can negotiate with the insurer to change the terms of the policy if you are not working because of a "disability" and are concerned about returning to work because of the wording of the recurring disabilities provision. For example, the period of time is too short, or your want to go to work for another employer but your policy only applies if you return to work for the same employer. Unless you are experienced as a negotiator, it is preferable to have an experience negotiator such as an attorney negotiate this type of change for you. The discussion with the insurer could trigger a re-examination of whether or not you are still disabled.

The Maximum Benefit Period is the longest period during which benefits will be paid.

Common provisions are:

• Payment "to age 65"
• Payment for a period of time such as five years.
• Payment for a period tied to your age when disability begins. For example:
  • Claims starting before age 60……………. to Age 65
  • Claims starting when age 61……………. 3 years
  • Claims starting at age 62…………………. 2 years
  • Etc.

Most plans limit the Benefit Period if the disability is due to a mental or nervous disorder. The plans typically pay such claims for a limited period of time, such as twenty-four (24) months.

If your illness is not a mental disorder, but there are some mental symptoms such as short term memory loss, disorientation, even dementia due to either the disease or medication, make sure the doctor is clear in his statements so the insurance company won’t try to impose a two year limit on benefits.

All plans have exclusions and limitations beyond the Pre-Existing Conditions Exclusion and the Mental and Nervous Limitation. They usually include disability due to:

• Declared or undeclared war.
• Injury incurred while participating in the commission of a felony.
• Work-related injury (which is usually covered by Workers' Compensation).
• Substance abuse, although some plans will pay benefits provided the claimant is participating in an approved treatment program
• Self-inflicted injuries.

In an effort to encourage claimants to go back to work, most Long Term Disability plans provide benefits for rehabilitation.

These benefits vary dramatically from plan to plan. However, all of them require that the Long Term Disability insurance company approve the rehabilitation program before you start it.

Most plans have a provision that waives any premiums while you are disabled.

If your policy contains a waiver of premium clause and you become disabled, and if you pay any part of the premium, confirm that the premium is paid (or pay it yourself) until you receive confirmation from the company in writing that the waiver is in effect.

If you write a check, write on it: “Contested premium, Should be on waiver.” Keep doing this until the insurance company confirms the waiver in writing.

You can always get a refund for premiums you didn’t have to pay.

A few Long Term Disability plans will allow conversion to an individual plan if you leave the group

Like most conversion plans, enrollment must be within a limited period of time after losing the group coverage. For example, the plan may require that it must be converted within 31 days of losing the group coverage.

You will not receive the same plan you had with the group. However, the benefits are generally at the same level they would have been if you had become disabled under the group plan.

You can't rely on an income form a Disability Insurance policy if the insurer won't be able to pay the benefit, or if it goes out of business.

You can check the company's financial situation through third party rating agencies such as AM Best (www.ambest.com ), Standard and Poor's (www.standardandpoors.com ) or TheStreet.com (http://thestreet.com/ratings ) formerly Weiss Ratings.

Check with your state insurance department to find out whether there have been complaints about the company, and if so, what they are. For contact information for your state agency, see: www.naic.org .

Also check to see what, if anything, is known about the company at your local Better Business Bureau. For contact information, see: www.bbb.org .

Whether or not your benefits are taxed depends on how the premiums were paid. Either the premium or the benefits will be taxed, but not both.

In general, this means:

If the employer pays for the Long Term Disability plan: Any benefits you receive will be taxable as ordinary income.

If you pay all the premiums with pre-tax dollars: The benefits are subject to income tax.

If you pay all the premiums with after-tax dollars: The benefits are not-taxable. If you pay the entire cost through payroll deduction with dollars that will be included in your W-2, then the premiums are paid with after-tax dollars.

If you pay a part of the premiums with after-tax dollars, and your employer pays the remainder: You will only be taxed on the portion that your employer paid -- in the same proportion as payment for the premiums. For Example: If your employer pays 70% of the premium and you pay 30% through payroll deduction, then 70% of each benefit check will be taxable and 30% won't.

If your employer has been paying the premiums for your disability coverage: If it looks as if you will be going onto disability in the future, while you are still working, consider asking whether your employer will allow you to reimburse the premium payments at least for the policy year which covers the year when you go on disability. Preferably also reimburse the employer for the year before that as well. This arguably should allow you to receive disability payments income tax-free.

While there have been no cases on point, in theory this should be permissible. The suggestion is from a benefits tax expert who suggests that the additional period is more likely to provide the desired tax result. Do not attempt to do this without consulting with a tax advisor prior to speaking with your employer.