I’m impressed almost every day with the sincere concern employers have about their employees’ well being. In many cases, payroll and employee benefits and numbers 1 and 2 on the list of the most costly business expenses, but employers will often go further to assist employees. Loans, flexible scheduling, corporate events, meals on site, gym memberships, and tuition reimbursement are some examples.
We’ve recently run into a couple of situations where an employer, trying to help an employee get through a difficult time of illness, inadvertently caused disability income insurance claims to be denied. Here’s an example:
Sam Smith (not his real name) worked at XYZ Manufacturing Company. Sam came down with an illness that was serious, but progressing slowly. The owner of XYZ, not wanting Sam to go without income, continued to pay him his full salary while he was slowly reducing his hours, figuring that they would eventually file a short term disability (STD) claim. When Sam finally had to stop work completely, they filed a claim, arguing that the date of disability was 3 months ago when Sam was first diagnosed and began to slowly reduce his hours.
Unfortunately, the claim was denied. The reason for the denial was that Sam never met the definition of disability, one of the most important parts of a disability insurance contract. To be considered “disabled,” most contracts require all four of the following criteria:
- The claimant is sick or injured (off the job for STD claims)
- The claimant is under the care of a doctor
- The claimant has had a loss of income
- The claimant is not able to do the duties of his or her own job
No two contracts are exactly alike, but these four provisions are very common.
In Sam’s case, he was sick, he was under the care of a doctor, and he was not able to do the duties of his own job. Fortunately for him, he has a very generous employer that continued to pay his full salary while he was declining. Unfortunately, the employer’s continued payment of full salary disqualified him from collecting on the STD policy.
We will be able to fix this for Sam. He’ll just re-file the claim with a different date of disability, but the example illustrates how important it is for employers to understand how their disability insurance contracts work. In Sam’s case, XYZ Manufacturing could have saved 3 months of partial salary by allowing the disability policy to do what they paid for it to do. They could have paid Sam a partial salary for his part time work, and the STD policy would have paid a partial benefit to supplement the salary payments.
There are some insurance companies that offer contracts that do not require a loss of income in their definition of disability. This can be helpful, but it’s not completely necessary. Most policies will work just fine if we review the plan provisions and operate accordingly.