Why You Must Fully Understand Your Long Term Disability Group Insurance Policy [Case Study]

By Roger Foisy on August 21st, 2015

Misunderstanding your long term disability (LTD) group insurance policy can result in a great deal of stress if you are ever in a position to require those benefits. Unfortunately, your LTD policy may not be as straightforward as you think.

Case Study: Sally Receives $6000 Less Annually in LTD Benefits

Long Term DisabilitySally works as a Risk Analyst for Company A. Sally’s position as a Risk Analyst entails numerous responsibilities and as a result, she works long and stressful hours. The corporate structure and ongoing politics of her workplace further add to Sally’s already stressful days. Sally now finds it increasingly difficult to perform her work at Company A at the level she once did.

Sally has noticed that she often feels depressed, anxious, and stressed at home. Her work-life has started to negatively impact her life outside of work. Because the stress and anxiety of her work has become unmanageable and overwhelming, Sally’s doctor decides that from a medical standpoint, Sally is unable to continue with her employment responsibilities and suggests that she apply for disability. Sally goes on long term disability. This is a difficult decision for Sally because her annual salary is $100,000 and she fears the stigma that may become attached to her should her co-workers learn of her mental illness.

Although Sally is approved for LTD benefits by Insurance Company X under her employer’s group insurance plan, her benefits are lower than what she believed she was entitled to.

The statement that Sally received with each paystub stated she was entitled to $5000 per month in LTD benefits. However, Insurance Company X only paid $4500 per month, arguing that the statements from Company A were incorrect and that the master policy instead indicated that Sally would only be entitled to $4500. Sally had not read the master policy from the insurance company; instead, Sally had relied on the information given by her employer as accurate. When she reviews the employment statements she notices for the first time in small print that the calculation by the employer is not guaranteed and that the master group policy should be referred to.

Insurance Company X refused to pay Sally her LTD benefits unless she accepted $4500.

After speaking with her lawyer, Sally reluctantly accepted LTD benefits in the amount of $4500, and signed a release for Insurance Company X. Receiving $4500 per month is a considerable decline from Sally’s normal salary. The $500 difference of what Sally thought she was entitled to is $6000 less annually.

Sally was certain she would receive $5000 per month in LTD benefits, because that is what the bi-weekly statements from her employer stated. While Sally may have a claim as against her employer for the difference, that claim is likely to take several months or even years to resolve and Sally is not sure that she wants to be suing her own employer who she hopes to return with once she is medically cleared to do so.

What can we learn from Sally’s situation? How can you avoid making the same, or similar, mistakes?

Always Read Your Master Policy

As we saw in Sally’s case study, the amount you will receive in LTD benefits may be different than what it says in your summary booklet.

The booklet you receive from your employer is typically a summary of the master policy. However, the master policy is usually negotiated by your employer and the insurance company. Your company’s version of the benefits plan may have different categories for different positions of employees – which the summary booklet may not reflect.

For example, the calculation of actual LTD benefits for an executive in the company may be different than that for the salespeople, which may be different than that for the administration staff.

The section of the master policy dealing with long-term disability benefits can be around 10 to 30 pages long and goes into all the specifics you need to know. It defines who is covered and includes the formulas to calculate the premiums for each group. Usually an employee summary booklet is only a basic overview, and does not necessarily have the correct information for your role in the company or your precise circumstances.

Ask Questions and Confirm Answers

Don’t be afraid to ask your employer specific questions about what you are covered for. Confirm the answers you receive with the insurance company. Makes sure you fully understand your coverage, especially if you find anything in the master policy confusing.

Ensure Your Employer Reports Any Salary Increases

While Sally did not face this issue, it is easy to make the mistake of assuming your employer is reporting your salary increases over the years to the insurance company … when in reality they may not be.

Many LTD benefits are calculated based on your annual salary. If your employer is not keeping the insurance company up to date with your raises, you may find your LTD benefits are significantly lower than they should be.

Consider if you made $40,000 three years ago and your employer hasn’t reported your new salary of $50,000. Your LTD will be based on the old amount, and you will not receive the benefits you should be entitled to. Note: This is also important for your life insurance benefits, which are also often based on your salary and are paid to your loved ones upon your death.

Understand Your LTD Policy

If you understand your LTD policy, you will avoid being blindsided by receiving fewer benefits than you expected if you ever need to use the coverage.

Roger R. Foisy is an experienced long term disability lawyer in Ontario who helps clients receive the long term disability compensation they deserve. Do not hesitate to contact Roger and his team today for immediate support and a free consultation.

Watch my Long Term Disability Video Series for answers to some common LTD questions.

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