A friend of mine told me today he’s going to be part of a layoff and his last day is the end of the month. He said he could continue health insurance through COBRA, but his short-term and long-term disability insurance would end on his last day. Saying it wasn’t available to be continued under COBRA.
He said purchasing individual LTD insurance is going to be a lot more expensive than what the group policy was from the employer. But he said he thinks he has to be working in order to have LTD insurance, and wasn’t sure if they could turn it around quickly enough for him before his last day on the job.
I don’t have experience in this situation so I’m not sure he has the information right or how this works. Has anyone gotten an individual LTD insurance policy? Were you able to get it while you were still employed while being covered by the group LTD insurance?
From what I have understood in reading LTD insurance policies, they typically cover 60% of your gross income at the time the policy was written. But I’m not sure you can get a new policy if you are currently unemployed, is that correct?
The other thing, he only has 2 weeks to get it then before he won’t be able to get covered unless he’s going to a new job. A job which may or may not have LTD insurance offered as a group.
I don’t know anything about disability insurance, however I can tell you that health insurance and COBRA varies from state to state and with the size of your employer. So even though I can’t help you, the answers will almost for sure require the state that your friend is in and possibly the size the amount of employees at his current workplace, so you should probably let us know that information since other people that can answer it will need to know it (at least the state).
As far as disability, how much he makes might be a factor, but I doubt it. I’m only saying that because I recall when I was on worker’s comp disability I remember it topped out at a certain point.
I had lunch with my friend today and he told me the following he found out.
His current LTD group policy with CIGNA doesn’t have a conversion option for employees who leave the company. Apparently CIGNA can do that, but his employer didn’t get a policy which allows conversion.
He spoke with an insurance broker this morning who told him that as part of the underwriting process they will ask if you expect there to be a change in employment within the next 6 months. That’s not good, because he knows his job will end this month.
What is puzzling to me, is if the policy had allowed conversion, it doesn’t seem to matter if the employee is going to be unemployed or not or at what salary. They write the individual policy and collect your money regardless. But if you won’t be employed while applying for a new policy with a new insurance company as an individual, they don’t want to cover you because you aren’t employed. But the insurance broker said he would gather more information and get back to him.
So this is the information he has gotten so far. If he can’t get coverage, he’s going to have to go without LTD until he finds another job, who may or may not have LTD. If they don’t offer LTD after being employed by them he will have to get an individual policy if he wants to be covered.
What I don’t get, is why the insurance company would care if you are currently employed or not, provided you are making payments. I know with term life insurance, they don’t care if you become unemployed, provided you keep making the payments.
Makes me wonder if there is a cost difference to the employer from the insurance company to provide a LTD policy with and without conversion. Seems like the insurance company would want to allow conversion to keep you as a customer, especially these days since billing is done electrically.
LTD policies are either own occupation (“own occ”) or any occupation (“any occ”). The difference of course, what they are insuring. If you can’t work in any occupation, you’re probably more disabled than if you can’t work in your own occupation. Thus, own occ policies are better, and more expensive. Many lawyers, doctors, dentists, get own occupation policies (including specialty riders, so if you’re a heart surgeon who can’t do heart surgeries, you are considered disabled even if you can be an internist).
Most group policies people get from work peg the benefits as a percentage of the employee’s wage, such as 60%. Most individual policies pay a set amount, $5,000 per month, for example. So, “conversion” is not always a simple thing. Also, most employment based policies are governed by ERISA (which severely limits your options if they wrongfully deny your claim) while wth individual policies you can usually sue for your contract benefits and bad faith (allowing extra-contractual compensation such as emotional distress, attorney fees, and perhaps punitive damages).
A very big concern of insurance companies is their fear of people making claims because they can’t find work rather than because they’re actually disabled. Changing jobs would not be a big deal, but not having a job when you apply might be. They are insuring your income stream, so they want you to have one.
Even when pricing group LTD insurance, actuaries reflect on the likelihood of mass layoffs in the near future, since this is expected to trigger a significant increase in LTD claims.
Individual insurance in general tends to be more expensive than (subsidized) group policies, since it’s very subject to anti-selection, in that people who know they’re likely to (or are planning to) make a claim are far more likely to sign up. But when you’re talking about issuing LTD policies to people who are not currently employed - I’m frankly surprised that such policies exist altogether. If they do, I would expect the rates to be sky-high.
I guess there are people trying to game the system, I can understand that, but either way I suspect it would seem very difficult to do so. I’d think you need doctors to support the claim that someone is disabled or can’t perform the specific occupation the individual policy was written for. I think it would be a bad plan to expect to use it because you can’t find work or just decided you no longer want to. Maybe even if most or all of those are denied, it costs the insurance company money to process those claims and make a determination too.
Your suspicion is incorrect - the notion that layoffs trigger significantly increased LTD claims is not some theory but is backed by an enormous amount of experience. (As an anecdote, I had an airline client with a self-insured LTD plan for pilots. They had an enormous increase in LTD claims in the several years after 9/11 when the airlines laid off a lot of pilots.)
There are many types of illness/injury that don’t really lend themselves to medical verification, e.g. back problems, and a lot of others which could go either way in a given instance. But either way, the phenomenon I’m describing is pretty well documented and widely accepted in the insurance business.
I don’t work in the insurance industry, so I don’t have any knowledge of that and I don’t think that way of trying to cheat the system. To me insurance coverage is there for catastrophic events. I personally wouldn’t have the patience to go around faking something like that and lying to doctors or whatever else might be needed. Even a boring job would be less stress to me than living a lie.
Thanks to everyone who contributed to this thread. I certainly learned some things, including the ugly side of it. It has also caused me to take notice that group LTD policies while they can be cheap are not the best coverage compared to getting an individual ones even though they are much more expensive. It might be a better idea to get an individual these days because you can continue the policy while changing jobs. What I do know about group LTD policies is they end on your last day of employment. So people can be unexpected fired or a layoff, and be without STD, LTD and the company’s life insurance too.