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How ERISA Long-Term Disability Plans Differ From Individually Purchased Long-Term Disability Policies



As part of a strong benefits package some private employers provide long-term disability insurance options for their employees.  If an employer chooses to provide a long-term disability insurance policy to its employees and the group policy complies with the Employee Retirement Income Security Act (ERISA), then the group policy will be considered an employee welfare benefit plan and subject to ERISA, which is a federal law.

While some employers provide a long-term disability insurance benefit plan as part of their employee benefits package, many do not.  This means there’s a robust market for individually purchased policies.  This can be confusing when problems arise, as there’s a difference in how ERISA welfare benefit plan disputes are governed as opposed to policies purchased individually.

To simplify and help alleviate some of the potential confusion, we’re going to cover a few key differences between ERISA governed long-term disability insurance plans and an individually purchased long-term disability policies.

Establishing And Applying a Definition of Disability

In another article, covering the differences between long-term disability policies and social security disability, we discussed the various definitions of what constitutes a disability, or disabling condition, as it/they relate to various types of disability insurance benefits.   Generally speaking there are three definitions in play when discussing entitlement to long-term disability insurance benefits.

Own Occupation Coverage

Own occupation coverage provides benefits for a disabling condition that prevents the policy holder from performing the activities and functions of their current job-role.  You might be able to perform other work, but if you are disabled from performing your “own occupation” you would still qualify for this type of long-term disability insurance benefit.

Own occupation coverage almost always comes with time limits associated.  This means that you, as the policy holder, would be able to collect benefits for a disabling condition that stopped you from performing your own occupation at the time of your disability, but only for a time, almost always two years.  After that period, the standard for your definition of disability changes from own occupation to any occupation or any occupation with an income qualifier.

Any Occupation Coverage

Any occupation coverage means that for the Long Term Disability (LTD) policy to pay out you must be unable to perform any job or wage earning activity.  This type of coverage is very similar to the requirements of Social Security Disability (SSDI).


Any Occupation w/ Income Qualifier

Under this definition, you must show you are unable to perform any occupation where you can make at least a certain percentage of your pre-disability income. Usually this percentage is between 60 to 80 percent.


Both employer-sponsored (ERISA) long-term disability plans and individually purchased long-term disability policies can have variations of these three types of coverage, and the inherent definition of a qualifying disability.  However, the most common group plans (ERISA plans) usually have a two year Own Occupation period followed by either an Any Occupation or Any Occupation with an Income Qualifier.

Individually purchased long-term disability policies are by their nature more customized because you are allowed to negotiate the policy directly with the insurance company.  The insured may obtain benefits that cover their own unique needs, and often simply define disability as the inability to perform your Own Occupation.


Procedural Differences 

Employer sponsored long-term disability insurance plans are bound by the requirements set forth in ERISA’s regulations. In the case of a claim denial this means that the insurer is required to provide a review process that meets ERISA’s requirements.  Through each step of the process, the insurer is required to provide very specific information to the claimant, and provide the claimant an appeal and a full a fair review. If the appeal is denied then the claimant has the ability to eventually sue in federal court to overturn the denial and receive their benefits.

In contrast, an individually purchased long-term disability insurance plan is essentially a state law governed contract between the insured and the insurer.  The procedural requirements of ERISA don’t apply to those contracts, and Individual policy holders may file court claims immediately after a denial and seek to collect compensation and sometimes even punitive damages.

Note: Claimants who are at this point should contact a long-term disability insurance lawyer for assistance and guidance. 


Who Can Help You When If You’ve Been Denied 

ERISA long term disability policies that meet ERISA’s requirements are benefit plans. They are very structured and consistent no matter what state they’re administered in because they are governed by a ERISA which is a federal law. The only caveat is that individual state insurance regulations are saved from ERISA preemption, and therefore each state’s insurance laws do affect ERISA governed claims.   Conversely, individually purchased policies are governed strictly by state law, and the process for disputing a denial can vary wildly from state to state. No matter which type of policy is at issue, all long-term disability disputes are very challenging in that there is a very nuanced set of statutory and regulatory laws, as well as ever evolving case laws affecting how best to handle these cases.  For these reasons, and many more, working with an experienced and highly reviewed long-term disability insurance law firm is one of the best decisions you can make to move your claim forward in a positive direction and protect your rights.


If you’ve been denied for a long-term disability benefits, you can contact us today


About the Author
In 1998, Chris obtained his law degree from the University of Oregon, and in 1999, he accepted his first job as an attorney with the Washington State Attorney General’s Office. In 2000, Chris entered a private litigation practice in Vancouver, Washington. In private practice, Chris litigated a variety matters including administrative, criminal, real estate, construction, business, and insurance.