Individual Disability Insurance

Individual disability insurance is a type of long-term disability (LTD) coverage that provides income replacement when an injury or illness prevents you from working. Unlike group disability insurance, which is offered through an employer or association, individual disability insurance is purchased directly from an insurance company.

Because these policies are owned by the insured, not the employer, they offer more flexibility and control, but they can also involve more detailed underwriting and higher premiums.

Key Features of Individual Disability Insurance

An individual disability policy can be customized to fit your needs. Common features include:

• Benefit Amount: The percentage of your income that will be replaced if you become disabled.
• Waiting Period: The length of time you must be disabled before benefits begin (also called the elimination period).
• Benefit Period: How long benefits will be paid once you qualify. Some policies pay for a few years, while others continue to retirement age.
• Definition of Disability: The criteria the insurance company uses to decide if you are considered disabled. This may vary between “own occupation” and “any occupation” definitions.

These features can be adjusted when purchasing your policy, allowing for a highly personalized plan.

Who Benefits Most from Individual Disability Insurance?

Individual policies are especially valuable for self-employed professionals, business owners, and high-income earners who do not have access to group disability coverage through an employer. They also appeal to individuals who want to protect a larger share of their income or maintain control over their policy regardless of employment changes.

While individual coverage typically costs more than group coverage, it can provide stronger, longer-lasting protection tailored to your financial situation.

RELATED POST: Review Your Application For Individual Disability Insurance Before Applying

Advantages Over Group Disability Insurance

Compared to group LTD policies, individual disability insurance offers several advantages:

• Portability: You own the policy. It stays with you even if you change jobs or leave your profession.
• Customization: You can choose your own benefit amount, waiting period, and definition of disability.
• Higher Benefit Amounts: Individual policies often allow greater income replacement than employer-sponsored plans.
• Underwriting Accuracy: Because individual policies require medical and financial underwriting, your risk profile is more precisely assessed—sometimes resulting in better terms.
• Tax-Free Benefits: Premiums are typically paid with after-tax dollars, so disability benefits are usually tax-free.

These advantages make individual disability insurance an attractive option for those who prioritize stability and long-term financial security.

Legal Differences: Individual vs. ERISA Disability Insurance

Individual disability insurance policies are governed by state law, while group LTD policies are generally governed by federal law under ERISA (the Employee Retirement Income Security Act).

This distinction has major implications if your claim is denied or terminated:

• Individual Disability (State Law):
  • Disputes are handled in state court.
  • Courts often apply a de novo standard of review, meaning the judge independently reviews your claim.
  • State law governs how policy language is interpreted and what evidence is required.
• Group Disability (ERISA):
  • Disputes are handled in federal court.
  • Courts usually apply a more deferential “arbitrary and capricious” standard of review, giving insurers broad discretion.
  • There are strict procedural rules and limited discovery options.

Because state law often provides stronger protections for policyholders, individual disability insurance can offer significant legal advantages in the event of a dispute.

Understanding Your Policy Before You Need It

Before a disability occurs, it’s important to understand exactly what your policy covers and where potential gaps exist. For example:

• Does your policy cover partial or residual disabilities?
• Is your disability defined as “own occupation” or “any occupation”?
• How long do benefits last?
• What exclusions or limitations apply?

Knowing the answers to these questions before you need to file a claim can prevent costly surprises later.

Getting Help with Your Individual Disability Insurance Claim

If your individual disability claim has been denied or terminated, the Ortiz Law Firm can help you appeal or litigate your claim under state law. Call us at (888) 321-8131 or complete our free case evaluation form to get started.

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