Employees in Chicago claiming long-term disability insurance under the employer’s group policy, governed by ERISA § 502(a), face a number of challenges. One of them is that the policies generally require a loss of income before becoming entitled to benefits, so they generally cannot ask for the approval first, and stop working second. This places your income at risk of what the insurer will do after you have already lost your income. But a denial, or termination of those long-term disability insurance benefits, can force you to search for other ways to have income in the meantime.
Many states offer some type of state unemployment benefits. Often individuals whose disability insurance claims were denied file claims for unemployment. I do not give any advice whether doing so is proper under any state’s rules of eligibility, but I have seen it happen. Often the disability insurance policy states it offsets any such income. If the long-term disability insurer subsequently overturns its denial and offsets these unemployment benefits, it results in an indirect transfer of funds from a State’s unemployment fund to a long-term disability insurer.
Often claimants left with no income by a long-term disability insurance denial apply to commence early payments of a pension benefit, either from an employer’s pension plan, or the Social Security Administration. These payments are reduced actuarially to reflect being taken earlier than normal retirement age. When the long-term disability insurer subsequently overturns a denial, and purports to offset these receipts, it again results in a transfer of wealth from the insured’s retirement nest egg to the long-term disability insurer. Something similar happened in Mrkonjic v. Delta Family-Care and Survivorship Plan, No. 19-56059, 2021 WL 2071973 (9th Cir. May 24, 2021). After years of litigation, the court previously held Mrkonjic was entitled to rescind the early retirement election. The most recent decision concerned whether the relief previously awarded also included reinstatement of his waiver of life insurance premiums.
Often the same insurer that provides the group long-term disability insurance also insures the group life insurance and accidental death insurance. These coverages may be entitled to extension with waiver of premium payments if you are Disabled from any gainful occupation. Depending on the amount of life insurance coverage you have, this could be a substantial influencing factor in denying or terminating your long-term disability insurance claim.
If you make a long-term disability claim and have any pension benefits through your employer or any group life insurance, consult an experienced long-term disability insurance lawyer regarding the collateral effects your disability claim may have on other benefits, and how to avoid transferring any of your wealth to an insurance company.