Quality of Disability Insurance (Benefit Tips ® - © 2002)

Long-term disability insurance is the most important employee benefit. The risk of occurrence is high and the financial impact devastating. Twenty-five percent of your workforce will be disabled for at least six months during their career. Without adequate coverage they are left to rely on social assistance.

I was involved with dozens of disability claims during the past twenty years. Each one was settled fairly except for Cathy’s claim.

I met Cathy a decade ago. She worked her way up to vice-president of a Toronto consulting firm. She loved her work, got along with everyone and had outstanding performance reviews. Three years ago she became ill and after a year of juggling her work and recovery she finally gave up her job.

Cathy expected to receive disability benefits until she got better. After all, she paid long-term disability insurance premiums for over a decade. But the insurance company decided that Cathy was not disabled.

When I talk to Cathy I sense her indignation. She expected her claim to be approved. Cathy lost her health, her job, her co-workers, her income and now her dignity was at stake.

To understand how this can happen we need to look at weaknesses in Cathy’s insurance contract.

Cathy’s contract states that she will be considered disabled if she is deemed so by the insurance company. A better contract would outline the criteria without positioning the insurance company as the sole decision maker.

Cathy was seeking the best treatment from the best specialist. No one thought she was faking it except the insurance company. They declined her claim and appeal by deeming her not disabled. (I’m sure she wished her doctor could do that!)

Another weakness in Cathy’s contract is that her partial disability benefit only paid while she qualified as totally disabled but worked on a part-time basis. A better contract would define partial disability as something other than total disability. The following definition of partial disability has been available for twenty years: “The insured, while unable to perform all of the material duties of his/her regular occupation on a full-time basis, is performing at least one of the material duties of his/her regular occupation on a part-time or full-time basis and earning currently at least 20% less per month than his/her indexed pre-disability earnings.”

Total disability only covers part of the risk. Cathy’s disability was progressive and if her contract had a proper partial disability benefit she would have been able to claim sooner. Furthermore, most disabilities don’t miraculously disappear; they involve a gradual recovery over many months or years.

Insurance is a contract that you arrange when you are healthy. Please review yours today and make sure it is the best coverage that your organization qualifies for.