Long-Term Disability Insurance Policy Provisions – Part II

This is a continuation from Long-Term Disability Policy Provisions – Part I.

Long-Term Disability Insurance – The “Maximum Benefit Period”

Almost all long-term disability policies stop paying benefits when you turn 65 years old, or when you reach the federal retirement age. This is often referred to as the “maximum benefit period.” Your policy should be very clear on this issue.

Also, if you are near age 65 at the time you become disabled, there will likely be a specific number of months you can receive benefits spelled out in the policy which may extend your benefits beyond the usual cut-off age. For example, the policy may provide that you can collect 36 months of benefits if you become disabled between ages 63-65.

Long-Term Disability Insurance – Pre-Existing Conditions Exclusions

Nearly all LTD policies will not pay benefits if you become disabled due to a pre-existing condition. There are two periods of time relevant to this exclusion: the “look back” period and the “look forward” period. The exclusion will only apply if certain things happen during both the look back and look forward periods.

The look back period is a certain amount of time (usually 6 months to 1 year) prior to your LTD coverage taking effect. Most LTD policies state that if you receive medical treatment of any sort (including an initial diagnosis or taking any medications) for a medical condition during the look back period, it will be considered a pre-existing condition. This can work to your advantage, if you have a medical condition but you have not treated it during the look back period.

The “look forward” period is a certain amount of time (usually 1 year) after your LTD coverage takes effect. If you become disabled during the look forward period due to a medical condition you treated during the look back period, your LTD coverage will be excluded.

To make this a little easier to understand, I’ll use an example. Joe has an LTD policy with a 1-year “look back” and 1-year “look forward” pre-existing condition clause. Joe has a heart condition for which he receives medical treatment. If Joe received any medical care for his heart condition during the year before he was first covered under his LTD insurance, he would need to work more than one year after his coverage took effect to avoid a pre-existing condition exclusion.

So, if Joe worked 1 year and 1 month after his LTD coverage took effect before becoming disabled due to his heart condition, his LTD coverage would have to pay him, as his disability did not occur during the 1 year “look forward” period.

By the same token, if Joe became disabled during the 1 year “look forward” period by some other medical condition, such as a new back injury, the LTD insurer would also have to pay him because he did not receive medical care for the back condition during the 1 year “look back” period.

Pre-existing condition exclusions can raise many potential legal disputes, so don’t assume that one applies to you just because your LTD insurer say so. Consult a disability attorney.

Long-Term Disability Insurance – The Mental/Nervous Condition Limitation

If you become disabled due to a mental health issue such as depression, PTSD or bipolar disorder, know that almost all LTD policies limit the length of time you can receive LTD benefits due to mental health issues. Two years of benefits is usually the most an insured can receive under an LTD policy for a mental illness.

I have seen some policies that have a 3 year limit, and some that have a 1 year limit, but the vast majority are 2 years. Insurers justify this discriminatory treatment toward the mentally ill by claiming that fraud is more likely in claims of mental illness.

Long-Term Disability Insurance – “Other Income Benefits”

Your monthly LTD benefit can be reduced if you receive other sources of income defined in your policy as “other income benefits.” The most common “other income benefits” are social security disability/retirement benefits and workers compensation benefits. Other income benefits will often include any actual wages wages you receive if you are able to work, even from just a part-time job. Your monthly long-term disability benefit will be reduced by exactly how much you receive from these other sources of income.

So, if your LTD benefit is $2,000.00 per month, but you also get $1,100.00 per month in social security disability benefits, your monthly LTD benefit will be reduced to $900.00 per month. This is one reason why all LTD policies require that you apply for social security disability benefits. If you refuse (and you shouldn’t), your LTD carrier will deduct what it estimates you would have gotten had you been approved for social security.

Note that if you receive a large social security “back due” benefit (often caused when your initial claim is denied but you win your social security benefits on appeal to an administrative law judge), you will have to pay your LTD insurer nearly all of this back due benefit, assuming that your LTD carrier was paying you your full LTD benefit while you fought with social security.

If your “other income benefits” reduce your LTD benefit to zero (or less), you can still be paid a “minimum monthly benefit” from your LTD insurance (usually $25.00-$100.00) if your policy provides for one.

Long-Term Disability Insurance – ERISA Policies

There are some provisions which are specific to long-term disability insurance policies covered under federal ERISA law, which are the majority of LTD policies. I will cover these in a separate article aimed solely at ERISA policies.