Disability Contracts have a lot of moving parts.
Look for these Enhancements When Comparing Plans:
“Or” definition of disability – “Or” definition provides comprehensive income protection, with a focus on returning to work. Using the “or” definition, employees qualify for benefits by meeting either of the following criteria:
“Own job” definition – When it comes to returning to work, many disability insurance carriers have “own occupation” language in their contracts for both STD and LTD, while some contracts provide an “own job” definition for STD. Own Job means the carrier looks at the job the employee was performing on the date of the disability – not the occupation. Why is this key? STD coverage is typically purchased as a replacement for or supplement to sick leave – or as a salary continuance benefit – with the expectation that the employee will return to his or her original job. So, the “own job” definition is a significant distinction.
“Unable to earn 80%” language – Some disability contracts require a “20% income loss” to start paying disability benefits while other contracts require an employee be “unable to earn 80%” of their pre-disability income.
What’s the difference? It can be considerable.
Disabled employees whose income is based partially or totally on commissions, services or billable hours may not experience an immediate income loss. The “20% income loss” language doesn’t recognize the immediate impact of a disability because payments from these sources can continue to be received after the disability begins. The “unable to earn 80%” feature in the Principal contract acknowledges the impact of the disability immediately, and allows the employee to qualify for benefits sooner.
Isaac, a real estate agent, sells his usual share of new business in May and June. In July, he’s diagnosed with a disabling illness. As part of his treatment schedule, he’s restricted to a 20-hour work week. He continues to receive commission checks during this time from sales made in May and June. As a result, “20% income loss” is not realized for the first two months of his disability. The Principal contract recognizes that Isaac is “unable to earn 80%” of his pre-disability income because his treatments have restricted him to work at 50% capacity, even though he continues to receive income from sales prior to the disability. This provision allows Isaac to begin qualifying for disability benefits sooner than he would under a contract with the “20% income loss” language.
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Source: HR 360, Inc.
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