Comparing ERISA Disability Policies to Private Disability Insurance: What Differences Do You Need to Be Aware Of?

While any type of disability insurance policy can provide valuable support when a physical or mental condition prevents you from working, there are vast differences between disability policies purchased individually and policies governed by ERISA that are provided through an employer. In particular, you need to be aware of the differences in the laws that govern these policies, the deadlines for claims and appeals, and the legal remedies that can be used if a claim is denied.

As attorneys experienced in resolving complex insurance disputes, we know that disability insurance claims are often some of the most misunderstood. Insurance companies intensely scrutinize these claims, looking for reasons to issue a denial. To succeed with the claims process, it is important to understand whether you have an ERISA policy or a private insurance policy and how to optimize the claims process for your type of policy.

What is an ERISA Disability Policy?

ERISA stands for the Employee Retirement Income Security Act of 1974, and it sets standards for many benefits provided by employers, including disability insurance. Many of the disability plans that employees sign up for through work are governed by this federal law, but some policies are exempt from ERISA rules.

Generally, ERISA policies are group policies negotiated between an employer and the insurance company to provide coverage to several employees. The employer pays for at least part of the premiums as a benefit offered to employees. (If employees are covering all costs themselves, the policy may be exempt from ERISA under the “safe harbor” rule in 29 CFR 2510.3-1(j).) Because the terms are agreed to by the employer, the employee has little control over coverage, and it is not likely to be as comprehensive as it would be if the employee were shopping for policies on their own.

What is Private Disability Insurance?

When someone purchases a disability insurance policy on their own, either directly through the insurance company or through an insurance agent, then the policy is a private, individual disability insurance policy. These policies provide a valuable safety net for business owners, professionals, self-employed individuals, and others who would struggle to meet obligations if a disability prevented them from earning income.

Individual private disability insurance policies can be negotiated to include different terms such as cost of living adjustments, a specialized definition of disability, specific levels of income replacement, and the option of residual disability benefits in case a disability limits but does not entirely prevent the policyholder from working.

What are the Most Important Differences Between ERISA and Private Disability Insurance

The key distinctions between ERISA disability insurance and private disability insurance are driven by the different laws governing these policies and how claims and appeals are handled.

What Laws Govern Disability Insurance Policies?

When a disability insurance policy is provided through an employer and meets the qualifications to be considered an ERISA policy, then it is governed by federal statutes and regulations. By contrast, when a policy is purchased as an individual private policy, it is usually governed by state contract law. 

Sometimes, it is not clear which state’s laws should apply to a disability policy. Generally, the laws in effect are those of the state where the policy was delivered to the policyholder or where the policyholder took steps to make the policy binding, such as signing the agreement and paying the premium.

How is the Claims Process Different?

ERISA policies and private individual disability insurance policies both require claimants to prove that they suffer from a disabling condition that meets the standard to qualify for benefits under the terms of the policy. The definition of disability and evidence necessary to demonstrate eligibility can vary tremendously between policies. ERISA policies are subject to federal rules regarding consultations for medical judgments and other requirements. Private policies are not subject to these rules, but the insurance policy may include requirements for demonstrating disabilities and qualifications.

Deadlines for filing claims, submitting evidence, and appealing unfavorable decisions also tend to vary significantly. ERISA policy claims are governed by federal guidelines and private policy claims are governed by state contract law.

How Does the Appeal Process Differ Between ERISA and Private Insurance Claims?

Appeals of denials on ERISA policy claims are subject to strict federal guidelines. Claims must initially be appealed through an internal administrative review, and all evidence needs to be produced during that process. It may not be possible to appeal the denial in court, and if litigation is allowed, it is often based solely on the evidence introduced earlier with no opportunity to provide additional evidence.

By contrast, the process of appealing a denial of a claim under a private individual policy frequently offers more opportunities to demonstrate the claimant’s eligibility. It may also be possible to file a claim against an insurer acting in bad faith.

FAQs About ERISA and Private Disability Insurance Policies

What do you need to do before filing a disability insurance claim or appeal?

It is a good idea to:

• Identify the source of coverage (private vs. employer-sponsored)
• Determine whether ERISA applies
• Determine applicable deadlines
• Review the definition of disability applicable to your policy
• Gather evidence to demonstrate that your condition satisfies the definition in the policy

In addition, if you’re preparing an appeal, it is critical to review the reasons for the denial and present evidence to refute those reasons.

Are all employer-sponsored disability policies governed by ERISA?

No, some policies are exempt. When the employer is a government agency or church-affiliated organization, then the policy is generally not covered by ERISA. In addition, policies are exempt if the employer does not contribute to the cost of the plan, participation is voluntary, and the employer is not actively involved in administration.

When do I need to work with a lawyer on a disability insurance claim?

Submitting a disability insurance claim that meets complex requirements can be extremely difficult without the right knowledge of the industry. An insurance attorney can help ensure that your medical evidence is complete and persuasive either during the initial claims process or during an appeal. Consulting an attorney about your claim provides peace of mind and can help you avoid extremely costly mistakes. If your situation does not require legal assistance, the attorney you talk to may be able to point you to other sources of assistance.  

Ver Ploeg & Marino Helps Policyholders Obtain the Benefits They Deserve Under Their Policies

Insurance companies work hard to justify denying disability insurance claims because so much money is at stake. Long-term disability claims can easily add up to hundreds of thousands of dollars or more.

At Ver Ploeg & Marino, we understand the tactics they use because we have decades of experience fighting for the rights of policyholders. To find out how we may be able to help you recover the benefits you should be receiving under your policy, call us at 305-577-3996 or contact us online at your convenience.

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