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With Long-Term Disability (LTD) insurance, the definition of disability plays a crucial role. It acts as the "golden gatekeeper" determining whether a claimant is eligible for benefits or not.
In this article, we explore the requirements, terms, and considerations related to the definition of disability in group LTD contracts.
How to Qualify
To qualify for Group LTD benefits, a claimant must meet certain requirements:
- Inability to Perform Material and Substantial Duties: The claimant must be unable to perform one or more of the material and substantial duties of their occupation.
- Earnings Loss: If the claimant can perform their duties on a modified basis (such as part-time or with partial duties), they must experience a loss of earnings of a certain amount, often 20% or more.
While some policies may only require an income loss or a loss of duties, most group LTD policies are likely to require both.
The Employer's Perspective
Employers aim to financially protect their employees while facilitating their return to work as effectively as possible. They must strike a balance between providing sufficient income replacement and ensuring that employees are motivated to return to work, whether part-time, full-time, or in alternative roles.
Let’s break it down
Material and Substantial Duties
This refers to the tasks, procedures, and duties required by an employer for an employee to fulfill their occupation. These duties are not tangential or occasional.
For example, occasional tasks like picking up a boss's favorite drink from Starbucks would not fall under material and substantial duties.
Note: Some policies may limit these duties to a 40-hour work week. If an employee can still work 40 hours but not overtime due to a disabling event, they may not be considered eligible for disability benefits. This limitation can be critical for doctors who often work long hours.
Occupation
Occupation refers to the job an employee performs just before their disabling event. It typically encompasses the tasks and duties commonly performed in that occupation across the national economy. It may not be based on what the employee does for a specific employer. Some policies differentiate between "job" and "occupation," with the former referring to the employee's actual duties and the latter representing what is typically done by someone in that job.
Earnings Loss Requirement
The earnings loss requirement is often stated as follows: "You must have Disability Earnings of less than 80% of your indexed Pre-Disability Earnings." This requirement involves two components:
- Indexed Pre-Disability Earnings (PDE): This typically includes base W2 earnings and may include bonuses.
- Disability Earnings (DE): Disability earnings refer to the income received while disabled.
The goal of this requirement is to prevent a provision of excessive income that could disincentivize the claimant from eventually returning to work. This is particularly important for highly compensated doctors.
Occupation Definitions for Doctors and Dentists
Doctors and dentists often face unique challenges when it comes to defining their occupation due to their hyper-specialization. With over 128 medical specialties and sub-specialties recognized by the American Board of Medical Specialists (ABMS), determining the exact specialty that their occupation fits into can be complex.
Their extensive knowledge, focus on specific areas of medicine, and inventive nature can lead to the creation and implementation of new technologies and approaches. However, these innovations may not be fully covered by their LTD policies.
Own Occupation for the First 24-36 Months
If not further defined in the policy, the occupation definition is as broad as an MD's duties. "Any Occupation" typically refers to any job that the claimant could reasonably be expected to do based on their education, training, or experience.
This could provide them with 60%-85% of their pre-disability income within the next 12 months. Another approach is to consider any job that could match the claimant's LTD benefit.
It's important to highlight that this can be problematic for highly compensated doctors.
Own Occupation for Benefit Duration (Medical Doctor)
If not further defined, the occupation definition remains as broad as an MD's duties. If a specialized doctor can no longer perform specific procedures, but only general tasks, they may not be classified as disabled.
- Based on DOT List
This definition is better suited for doctors performing the 20 or so specialties listed in the Dictionary of Occupation (DOT) published by the US Department of Labor.
- Based on Being "Certified" in an ABMS Specialty and/or Sub-specialty
Certification allows for a more specialized occupation definition, particularly for doctors with board certification in their specialty or subspecialty. It requires that more than 60% of the claimant's income in the two years prior to disability was earned in that specialty or subspecialty.
Note: Not all doctors are board-certified, especially younger ones.
Based on ABMS Specialty
This option does not require certification and considers the claimant's occupation based on their ABMS specialty.
Based on ABMS Specialty or Subspecialty
Similar to the previous option, this definition does not require certification and includes both ABMS specialties and sub-specialties.
Actual Procedures
Some LTD policies take into account the doctor's actual procedures and duties at their practice. This can be determined based on CPT codes, job descriptions, medical malpractice insurance coverage, and other relevant factors.
Conclusion
The definition of disability in group LTD contracts is a critical factor in determining eligibility for benefits. Employers seek to protect their employees while encouraging their return to work, while employees rely on the policy to provide financial support during a disabling condition.
Choosing the most suitable definition is crucial to ensure their individual disability insurance (IDI) claim experience aligns with their duties and procedures.
While more specialized definitions are more expensive and require more information gathering at claim time, they offer a better match for doctors' unique circumstances.
By doing so, employers can provide comprehensive coverage, and employees can have peace of mind knowing they are protected in case of disability.
