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What’s the Difference between ERISA and Private Disability Insurance Policies?

Monday, October 19th, 2015

Privately purchased and owned disability insurance is a policy that you purchase yourself, usually through an insurance agent.

You can work closely with an experienced disability insurance agent to determine what benefit level you need, and design a policy that is suitable for you and your family.

If you hold advanced degrees or work in a specific occupation, you will want to purchase an “own occupation” policy. For example, if you are a concert violinist, you are buying an insurance policy to protect your ability to play the violin and be paid for your ability to perform as a concert violinist.

Be aware that these contracts will be medically underwritten, and that statements made in the application must be truthful, and information about one’s medical history revealed, or at the time of claim, it may be subject to consideration of a term called rescission, where the insurance company tries to get out from the contract, based upon alleged misrepresentations of omissions of medical or other information at the time of underwriting.

Privately owned long term disability insurance policies are enforceable through the same legal system as any other insurance contract. This is far better for the policy owner, as fighting a denial or termination can proceed without being subject to the many restrictions that are imposed on ERISA policies. Litigation can take place in state and federal courts and can take place before a jury.

LTD benefits from a private disability policy are generally tax free as the policy is purchased with after-tax dollars. Be careful not to pay the premiums through a business, potentially removing the tax-free status of the benefits.

Private disability policies are sold based on the specific needs of an individual and offer better coverage as a result.

ERISA disability insurance is part of a benefits package that you receive from an employer.

In the past, each employee had the same type of policy, but today many disability insurance companies offer different levels of protection. This is in part to allow for more flexibility for the employee, but unfortunately it often leads employees to underestimate the importance of disability insurance and they find themselves with less coverage than they need.

ERISA or group disability insurance is usually less expensive than a privately purchased policy.

Group disability benefits are often taxable as ordinary income. Some policies permit the premiums to be paid for by employees with after tax dollars, making those benefits not taxable.

If you have to file an appeal or fight a termination from a group or ERISA policy, you must do so within the internal appeals process of the disability insurance company. You can only sue in federal court after exhausting any internal administrative appeals. This is a significant distinction with private policies that are not through one’s employment.

Whether you have a private or group disability policy, if you are facing problems with your disability insurance claim, you need to contact an experienced disability insurance attorney who can help you fight the insurance company and protect you and your family. If you have questions, call our office today. The call is free, and we welcome your inquiry.

Justin C Frankel

Written By:

Justin C. Frankel - Disability Insurance Attorney

Justin Frankel is a founding partner of the disability insurance law firm Frankel & Newfield and is a highly skilled litigator and advocate. He has published numerous articles on the challenges facing clients with private or individual disability insurance policies and those who own group or ERISA disability insurance policies.

Learn more about Justin | See Justin’s Publications



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