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What Long Term Disability Benefits Are Available?

Disability Wiki.

New York Disability Attorneys Doctor Checking PatientLong term disability benefits can be a vital component of an employee’s compensation package. Some employers deduct a small amount from the employee’s paycheck to pay the premiums while other plans are fully funded by the company. In addition, individual plans are available to supplement company plans or if no plan is offered. In any case, our New York disability attorneys will explain that a long term disability plan will replace a portion of a covered employee’s income for as long as they remain disabled under the definitions, exclusions, limitations and provisions of the policy.

Disability Determination

When a person files a claim under an insurance policy, it is up to the insurer to determine if that claimant is eligible based on the facts of their case and the specific language of the policy.  In general, a worker is totally disabled if, due to an illness or injury, they are unable to perform the material and substantial tasks of their own occupation.  Many policies also provide coverage for partial disability.  Most insurers consider an individual partially disabled if, due to an illness or injury, they cannot perform the material and substantial tasks of their own occupation on a full time basis but can do so part time.

There is also a provision in most policies that refers to a person’s ability to perform any occupation, not just their own occupation. Typically, if, after 24 months, due to an illness or injury, the claimant cannot perform the material and substantial tasks of any occupation, they are considered permanently disabled. If they can do any sort of work, no matter how much less the job pays than their own occupation, they are no longer considered disabled and monthly benefits will cease.

Monthly Benefit

A claimant who is awarded benefits as a totally disabled worker will receive a certain percent of their basic monthly earnings. Many NY workers are covered at 66 2/3 percent, but other policies may provide coverage options of 40, 50, 60 or 70 percent.

A partially disabled worker receives a pro-rated monthly benefit calculated by comparing what they actually earn currently in comparison to what their monthly benefit would have been had they been deemed totally disabled.  Many policies will consider an individual who is earning less than 20 percent of their pre-disability wages as totally disabled and provide full benefits accordingly.

Maximum and Minimum Benefits

Although monthly benefits are initially calculated based on the worker’s pre-disability income, each policy has a monthly maximum and minimum benefits amount. Typical maximum amounts are between $4,000 and $5,000 but may be considerably higher in certain cases.  Minimums can be a slow as $150.

Waiting Period

There are most often two different types of waiting periods associated with term disability coverage. The first one is a provision in the policy that excludes eligibility for any coverage under the policy until a set time has passed after enrollment in the plan. For example, most insurers require a covered worker to wait one year to be covered for a disability caused by a pre-existing condition.  A pre-existing condition is usually defined as an illness for which a claimant was treated during the three month period prior to enrollment.

The second waiting period is what is known in the insurance industry as an elimination period. This is the time between when the person’s disability began and when the insurer begins to pay monthly benefits. Common elimination periods are either three months or six months. Many people also carry short term disability coverage and they may be eligible for those benefits during the elimination period.

Continuation of Benefits

How long benefits continue is largely dependent on the age of the claimant when the first became disabled and began collecting benefits. Under most policies, if the claimant is under 60 when they first began receiving benefits, the benefits will be payable until they reach the normal social security retirement age. The normal retirement age is a sliding scale that goes from 65 for those born in 1937 and earlier to 67 for those born in 1960 or later.

For those who become disabled after age 60, the benefits will continue for between one and five years depending on their age.

Cost of Living Adjustments

Many long term disability policies incorporate a cost of living adjustment after 12 months of coverage. Typically, the increase is indexed to a commonly used inflation standard such as the Consumer Price Index.

Offsets Based on Other Income

It is not unusual for a long term disability claimant to also be eligible for compensation through a government plan in addition to the long term policy. However, to the extent they receive monthly benefits from workers’ compensation, for example, the long term monthly benefit will be reduced accordingly. Some long term policies specifically exclude coverage for disabilities that were the result of work-related activities.

While a worker may be eligible for disability under Social Security, many long term policies have a provision which requires the worker to apply for Social Security Disability before they apply coverage under the long term policy. However, as with workers’ comp, any Social Security benefits are offset. This applies to back pay amounts which are often payable to the claimant.

Taxability of Long Term Disability Benefits

The determination of whether the benefits are taxable is based on how the premiums were paid. If paid by the employer or with pre-tax dollars, the benefits are taxable; if paid with after-tax dollars, the benefits are tax-free. If the premiums are paid pre-tax and the employee pays a portion, the benefits attributable to that portion are not subject to tax.

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