Group LTD Coverage

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  1. Taxation of benefits… Benefits are TAXABLE when premium is employer paid, creating a situation whereby only a maximum of 40% of income is retained (with 60% of income covered) AFTER taxes (see #2-3-8 below for other possible reductions).
  2. Benefit amount… usually 60% of income with be covered as mentioned above and that is NOT guaranteed, since income can have fluctuated prior to the time of a claim. Caps (maximum coverage) are usually $5—10k/ month, depending on the policy’s specifications. See 20 below.
  3. Offsets… Benefit amount can be REDUCED by other income sources e.g., social security, workman’s compensation etc., thus further reducing the 60% coverage (40%net… see 1-2 above).
  4. Portability…employee doesn’t get a policy, only a certificate, which usually is NOT portable.
  5. Plan administration…time consuming (only applies to group LTD, not association plans)
  6. Option choices…may be limited (usually; no COLA/Residual, FIO etc.)
  7. Definition of total disability (own-occupation)… may NOT allow benefits to be paid to 65, rather only for 2-5 years, and then another definition takes over, which is much more restrictive.
  8. Bonus…normally NOT covered, again creating a coverage amount shortfall (see 1-2-3 above)
  9. Contractual wording… protects the carrier more than the insured (definitions, rate increases etc.).
  10. Rates… NOT guaranteed, can be increased unilaterally.
  11. Renewability… NOT guaranteed, coverage can be cancelled anytime by carrier, also coverage normally terminates at 65, just when it is needed the most.
  12. Claims… due to the coverage possibly being governed by ERISA, acts of bad faith by the carrier, may not be discouraged and as a result, under ERISA, claimant can NOT sue for punitive damages, therefore, a claim can possibly drag on longer than if it were an Individual DI policy.
  13. Timing of Claims… can only be submitted while working and while coverage is in force.
  14. Pre—existing conditions… may create an unanticipated problem at claim time.
  15. Contract wording… can be changed by the carrier ANYTIME, to be less favorable to the insured (see 9 above)
  16. Mental nervous claims will be paid ONLY for two years (see 9 above); unfortunately, it is the law in California
  17. Recovery Benefit…none (see 6 above)
  18. COLA conversion… none (see 6 above)
  19. Presumptive disability…none (see 6 above)
  20. Caps may create a “reverse discrimination” issue (see 1,2,3,8 above)! When there is a $5k cap, the highly compensated employee (HCE) who makes more than $100k/year will get less than the 60% as does everyone else! Example, when a HCE makes $200k, then they are only getting 30% of their income covered.
  21. Sickness when Manifested (better) vs. Contracted wording (see 6above)
  22. Elimination period… must be continuous vs. “stop/go” (better)
  23. Residual benefit, if available, will have a restrictive calculation

 

NOTE:Please bear in mind, while rare, there are always exceptions to some of the 23 deficiencies listed above, e.g. number 8 etc. and in all cases the current master policy will govern.