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Friday, 10 April 2020 11:35

The FAQs of Disability Insurance

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At Fall River we receive many questions regarding disability policies, and COVID-19 has introduced a plethora of new inquiries. Since disability provisions can be confusing and can vary between carriers, we’ve gathered a list of the most common questions our clients have posed to us. 

Disability insurance acts as partial income protection, helping them still meet their financial obligations in the event that an employee is unable to work as a result of a non-work-related injury or illness.

The two main types of disability insurance are short-term (under 90 or 180 days) and long-term (over 90 or 180 days). Short-term disability benefits would apply to the birth of a baby, as well as any instances in which an employee is unable to work for a short period of time due to an illness or injury. Long-term disability applies to chronic, longer-lasting conditions and can potentially last until the Social Security Normal Retirement Age in certain cases. The actual benefit amount is calculated as a percentage of the employee’s full salary with a weekly or monthly maximum benefit.

With that background, let’s dive into some common disability questions.

How is disability defined?

Policy provisions regarding disability definitions fall into two categories: “own occupation” and “any occupation.”

Under an “own occupation” policy, an employee is considered disabled if they are unable to perform the substantial and material duties of their specific occupation. In contrast, an “any occupation” policy would only consider an employee disabled if they are unable to perform any occupation for which their education and training reasonably qualifies them. This can be a very important provision, especially for higher-paid occupations such as doctors, attorneys, CEOs, etc.

For example, if a surgeon were to lose the use of a hand, rendering them unable to perform surgery, they would certainly meet the definition of disability under an “own occupation” policy. However, if the same surgeon could still perform diagnosis but not surgery, they would not meet the definition of disability under an “any-occupation policy.” This might seriously affect the surgeon’s income and they may not be able to maintain the same standard of living as before the injury.

Most standard policies include an “own occupation” definition for the first two years after disability, after which time the employee would be subject to the stricter “any occupation” definition.

Does Workers’ Compensation Affect Disability Benefits?

First, let’s clarify that there is in fact a clear distinction between workers’ compensation and disability benefits. Workers’ compensation is income protection for an injury or illness suffered while at work or during the functions of the job. Disability policies replace income in the event of an injury or illness that is not work-related.

Depending on the specific policy, there may be instances where an employee qualifies for both workers’ compensation and disability benefits. If this is the case, there will typically be an offset or benefit reduction, between the two benefits. Remember that disability income benefits are not designed to replace the entire paycheck, otherwise there may not be much incentive for the employee to return to work!

Are my employees covered if they are no longer employed but went out on disability while employed?

Yes, if an employee had met the definition of disability and was actively at work when they became disabled, the disability benefit would continue even if they’re no longer employed by the company. When they no longer meet the definition of disability, regardless of whether they’re still employed by the company, the disability benefits would end.

How does the disability benefit work when giving birth?

Short-term disability policies will commonly cover the birth of a child for a certain number of weeks depending on the type of birth (vaginal or C-section). The benefits would be subject to the elimination period, or waiting period, which begins on the date of the birth. After the elimination period (commonly either 7 or 14 days) has been satisfied, short-term disability benefits begin paying out. This is also the case with any other illness or injury that qualifies for short-term disability benefits.

Will my company’s maternity leave or other paid leave benefits offset my disability income?

This situation varies from carrier to carrier, so the best approach is to contact your carrier or Fall River Client Manager to discuss. That being said, there are some general rules regarding offsets for different types of paid leave, disability, and paid time off. All carriers will offset with state disability and Paid Family Medical Leave if applicable. All carriers will also offset with Social Security Disability Income if and when an employee qualifies. The offset makes it so the employee cannot collect more than the maximum benefit on their disability policy if receiving benefits from multiple sources. Some disability carriers will allow an employee to supplement their disability benefit with leave or time-off policies up to 100% of their pre-disability earnings. Other carriers will offset with an employer’s leave or time-off policies so as not to exceed the disability benefit amount.

Will disability insurance cover COVID-19?

The answer depends on how COVID-19 has rendered an employee unable to work. If the employee cannot work due to a diagnosed medical issue, they would be eligible to receive disability benefits. However, if an employee is unable to work due to another reason that does not have an actual medical diagnosis (e.g. stay-at-home orders), they would not be eligible to receive disability benefits.

Are enrolled employees still eligible for the disability policy if they fall below my company’s defined eligibility threshold as a result of COVID-19?

Most insurance carriers have relaxed their eligibility requirements in light of the global pandemic. As of the time this article was published, many disability carriers have taken the stance that an employee can remain on the disability policy even if they no longer meet the definition of eligibility.

The most common date for this relaxed eligibility with disability carriers is through the end of April. However, given that this is a fluid situation, it’s best to check with your carrier or Fall River Client Manager if you have a specific scenario you’d like to discuss.

There are many other confusing provisions related to disability insurance, and regulations vary from state to state. It’s important that your broker be familiar with the specifics of your company’s needs and policy specifics. If you have any further questions regarding disability insurance and your company’s provisions, please reach out to your Fall River Client Manager to discuss.

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