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May 04, 2005 at 08:00 PM
Group long-term disability coverage is the best bargain available in the insurance market today, but it is also one of the most difficult benefits for producers to understand.
Product knowledge is important in the group LTD market because the key to providing a solid disability plan lies in knowing the contract inside and out and in clearly identifying the contract’s benefits and limitations.
The best solution is to work with a committed carrier that specializes in group disability and an expert carrier rep who can guide you through the process of properly designing an LTD plan. But here is a brief overview of the topics that may come up when producers are talking to group LTD carrier reps.
The issuers of all LTD contracts have the same aim–providing a benefit for insureds who become totally or partially disabled. However, the construction of LTD contracts varies widely from carrier to carrier. Many different approaches to organizing and describing benefits have emerged. The differences lead to the presence or absence of restrictive definitions and benefit limitations that, in turn, affect contract costs.
Because of these variations, LTD contracts are best understood by reading them in their entirety and not by comparing their components. In fact, trying to line up LTD contracts component to component can be particularly frustrating. Language that seems quite similar on the surface can reflect significant differences in how benefits are paid. Likewise, wording that looks quite different can, after closer examination, turn out to yield identical benefits.
Understanding contract language is critical to understanding how the choices made affect what is covered and, more important, what is not covered.
Plan designers can take at least 3 approaches to controlling costs: limiting benefits, providing incentives for employees to return to work as soon as possible, or offering a combination of benefits limits and return-to-work incentives. When recommending one of these 3 approaches, the producer needs to consider how that approach will affect the coverage.
A common way to limit benefits is to choose a plan with more restrictive definitions of disability and to shorten the benefit period for common and difficult-to-manage disabilities, such as musculoskeletal disorders. Typically, these restrictions are added to a plan otherwise appearing to offer full-featured benefit percentages and plan maximums. This approach might create the perception that employers are offering true long-term protection when what they really are doing is buying less insurance by creating gaps in coverage.
Buying less insurance is a legitimate way to reduce costs if the client understands how the decision affects the ultimate benefit. When, for example, companies decide to buy less group term life insurance, the implications are clear. Instead of buying a $50,000 life benefit, companies may choose a $25,000 benefit. All parties involved can see how the decision to buy less life insurance affects the insured.
