There are three main categories of disability insurance policies, and the category under which an insurance policy falls will likely have important consequences for the recovery of disability insurance benefits.
Individual Disability Policies As the name suggests, individual disability insurance policies are purchased by individuals directly from the carrier and provide long-term disability benefits in the event of sickness or injury. Individual polices fall into two categories: "general" and "occupational." A "general" disability policy insures against sickness or injury that precludes the insured from performing all work while an "occupational" policy provides relief if the insured cannot perform the material and substantial duties of his or her own occupation. Thus, an "occupational" policy will provide greater coverage to the insured, who will be entitled to benefits even if he or she is able to engage in another occupation. Individual policies usually provide coverage in set amounts, e.g., $5,000 per month, rather than as a percentage of the insured's salary.
Association Policies Group disability insurance polices are made available to participants of organizations, such as members of the American Medical Association. Unlike most individual policies, association policies typically confer benefits calculated as a percentage of the insured's base salary, usually from 50-75%. These policies may limit the maximum amount of benefits payable, e.g., no more than $5,000 per month, regardless of base salary. Further, association policies often reduce benefits when the insured receives income from other sources such as Social Security disability benefits or worker's compensation.
Employer-Sponsored Disability Insurance Employer-sponsored disability insurance policies are typically the least expensive policies and are similar to the "association" policies described above, providing employees with disability insurance based on a percentage of their base salary as part of the employer's overall benefits package. Unlike association policies, however, employer-sponsored policies are typically governed by the Employee Retirement Income Security Act of 1974 (ERISA), which has significantly affected the administration and litigation of disability insurance claims. There are some exceptions to the general rule that ERISA governs employer-sponsored disability insurance policies. Most notably, most policies covering government workers are not subject to ERISA.
Unfortunately, when ERISA applies, it deprives insureds of significant rights to which they would normally be entitled under state law. These include the right to a trial by jury and the possibility of punitive damages where the carrier has acted unreasonably or maliciously.
Knowing what law will apply to a disability claim is an important first step in understanding your rights under the insurance policy. It is imperative, though, that any individual who is contemplating pursuing a disability insurance claim consult with a qualified attorney. More information can be found at www.disabilitycounsel.net