Common terms associated with Long Term Disability policies.
401(K) OR PENSION PLAN
A plan which provides retirement benefits but is not wholly funded by employee contributions. The following are not considered pension plans: a profit-sharing plan, a thrift plan, an individual retirement plan (IRA), a tax-sheltered annuity (TSA), a stock ownership plan, or a non-qualified deferred compensation plan.
This acronym stands for the Age Discrimination in Employment Act which prohibits discrimination against employees based on their age. Most companies utilize one of several standard benefit duration schedules which comply with ADEA for employees disables at age 60 or over.
BASIC MONTHLY PAY (BMP) OR BASIC MONTHLY EARNINGS (BME)
Since LTD is a salary-based coverage, the definition of basic monthly pay defines how the benefit will be calculated. Standard definitions may or may not include commissions. It varies by insurer. Generally, overtime, bonuses, and other extra compensation are not included in BMP or BME. If an employee is earning commission income, the contract will state the averaging rules the company will use to determine the BMP.
The maximum period of time for which a claimant is eligible for benefits for a period of disability under the contract.
MAXIMUM MONTHLY BENEFIT
The total benefit for which an employee is insured. This amount is subject to the maximum monthly benefit stated in the contract.
PRE-EXISTING CONDITIONS LIMITATION
A period of time for which no benefit will be payable if the condition which caused the disability existed for a period (specified in the contract) before coverage began.
Employees share in the cost of the plan with the employer. Most insurers require at least 75 percent of the eligible employees to enroll in contributory plans.
The employer pays the full cost of the coverage. Most insurers require all eligible employees to enroll in a non-contributory plan.
COST OF LIVING ADJUSTMENT (COLA)
This automatically increases the benefit payable each year. The percent increase is stated in the contract. This is an optional provision which requires a rate load.
COST OF LIVING FREEZE
The gross LTD benefit will not be reduced when other sources of income (such as Social Security) have a cost of living increase.
An insured may be considered partially disabled if they are able to perform some, but not all, of the material duties of their regular occupation on a part-time basis. An individual is generally considered partially disabled if they are earning between 20 percent and 80 percent of his indexed monthly earnings.
PROGRESSIVE PARTIAL DISABILITY
Similar to the Work Incentive Benefit, except there is not a specified number of months where partial benefits will stay at the 100 percent level. The time will continue until the insured no longer meets the definition of partial disability as stated in the contract.
RECURRENT DISABILITY OR SUCCESSIVE PERIODS OF DISABILITY
If a claimant returns to work and becomes disabled again within the time frames specified in the contract, the condition will be considered a continuation of the previous disability unless the disability is due to unrelated causes. A new elimination period will not be applied.
MATERIAL AND SUBSTANTIAL DUTIES
Duties which are normally required in a regular occupation which cannot be reasonably omitted or modified from the job.
An alternate method of determining in an individual is disabled. If an insured is unable to earn a certain percentage of pre-disability earnings due to an accident or illness, the insured may be considered disabled.
An employee must be actively at work to be eligible. This means the employee must be working the number of hours specified in the contract, at the employer’s usual place of employment, a location specified by the employer, or a location to which the job requires the employee to travel. Normal vacation is considered active employment. Temporary and seasonal employees are generally not eligible, nor are workers who are paid via a 1099. “Employer” means the policyholder, and includes any division, subsidiary, or affiliated company named in the policy.
The period of time following the premium due date during which premium payments may still be made. The grace period will be specified in the contract.
The process by which the gross LTD benefit is reduced by amounts payable by Social Security or other sources specified in the contract.
In the event of partial disability, an insured’s pre-disability earnings will be increased each year by a set percent as indicated in the contract. The percent increase is usually tied into a nationally published index such as the CPI-W.
EVIDENCE OF INSURABILITY
A statement of medical history which an insurer may use to determine whether to approve an applicant for coverage. The materials included with the proposal should indicate when evidence of insurability will be required.
LIMITATIONS FOR ALCOHOLISM, DRUG ADDICTION, MENTAL, NERVOUS, OR EMOTIONAL DISORDERS
Most contracts impose a time or dollar limit for benefits on the above types of disabilities. Specifics will vary by insurer.
OWN OCCUPATION PERIOD
The period of time specified in the contract during which the test of disability is whether the insured has the ability to perform the material duties of their own occupation.
ANY OCCUPATION PERIOD
The period of time following the Own Occupation Period during which the test of disability is whether the insured has the ability to perform the material duties of any occupation for which he is reasonably suited based on age, education or experience.
The continuous period of time beginning when an individual becomes employed full-time in an eligible class until they are eligible for coverage.
The period of time from the day a disability begins until an insured is eligible to receive benefits if disabled under the terms of the contract. Contract will state whether this period of time must be satisfied with total or partial disability.
PRIMARY AND FAMILY, FULL FAMILY, OR DIRECT OFFSET
This integration method reduces the gross LTD benefit by the amounts a claimant receives from Social Security as a Primary award (for the claimant) and a Family award (for the claimant’s dependents).
PRIMARY SOCIAL SECURITY INTEGRATION
This integration method reduces the gross LTD benefit by the amounts a claimant receives from Social Security as a Primary award.
REDUCING BENEFIT DURATION (RBD)
For employees disabled at older ages, generally age 60 and over, the RBD schedule lists a specific time period for which the claimant may be eligible to receive benefits, based on the claimant’s age when the disability began.
RESIDUAL OR ZERO DAY RESIDUAL
Allows the elimination period to be satisfied with total disability, partial disability, or a combination of both.
Many contracts contain a survivor benefit. This benefit is payable to a survivor of an insured if the insured was disabled for a specified period of time (generally 90 or 180 days), and the insured was receiving benefits for the disability. Benefit is generally three times the last monthly benefit.
Protects those persons insured under a prior plan. Credit for time served under a prior plan will be given toward satisfying the pre-existing conditions limitation of the new plan.
Employees pay the full cost of the coverage through payroll deduction. The plan is administered by the employer but paid for in full by the employees.
WORK INCENTIVE BENEFIT
For the first 12 or 24 months of partial disability (as specified in the contract) the gross LTD benefit will not be reduced until the combination of return to work earnings plus the gross LTD benefit exceeds 100 percent of pre-disability earnings. After the specified time period, the method of determining partial disability benefits will change. The new method is described in the contract.