The preX part of the equation

While most employees who opt into disability coverage will be added to the plan, not everyone is going to be eligible. That's why pre-existing conditions (PreX) must be part of the contract conversation, for the sake of fairness to employer and employee alike.

Related: 5 ways to convey the value of disability insurance

PreX is the exclusion of a condition that ultimately results in disability in a period of time just prior to becoming eligible for coverage. It's a part of nearly every carrier-issued long-term disability (LTD) contract. While it won't disqualify an employee from joining the worksite coverage, it may prevent a condition from being covered if a claim is filed. That's also different from how PreX is regarded in the Affordable Care Act (ACA), which adds to the confusion.

The fact that it's such a complicated topic is why it's critical for brokers to provide clarity to their clients. Employees view buying disability group coverage at the workplace as a way to access more affordable rates without having to answer health questions. It's important they understand up front what they're signing up for and what they're not.

Differing definitions of income

Another contract provision that requires a clear explanation is the definition of income, which will be a key component when a claim is paid. Employees may have a different understanding of what this means than what their contract states.

For example, a common way to define an employee's income is to take their base annual earnings excluding overtime and bonuses. But what if that employee also relies on commissions, bonuses or overtime pay? If those are not included in the definition of earnings in the contract, such as W-2 earnings, the employee may receive much less than they expected while on disability.

The definition of disability: little words mean a lot

The basis of any disability contract is the definition of disability, which might seem simple; however, the definition can be very complex. The contract could require the employee to have a loss of both ability and their take-home pay (earnings); or the contract could allow just one of those two requirements.  These are different claim outcomes for an employee based on the distinction.

That's why the little words – both, and, or – can mean a lot when it comes to meeting the benefit qualifications.

Watch for the definition of eligibility

Full-time employees must be physically and mentally capable of performing the substantial duties of their regular position for the minimum number of hours noted in the policy. Most employers set that number at 30 hours.

The mistake employers commonly make is assuming a blanket policy like this will be enough to cover all full-time employees, when in reality, the policy may not. For example, if an employer considers a 24-hour week "full time" for some employees, they need to know that those employees will not meet a 30-hour definition of eligibility, per the contract. The policy only covers employees whose premiums have been paid and who were on-duty the required number of hours stated in the contract. Both components must be met for a claim to be honored. 

Waiting period vs. elimination period

Different carriers mean different things when they use the term "waiting period," which can cause confusion if an employer is shopping for a new carrier. At OneAmerica, for example, the waiting period is the time between when an employee is hired and when they become eligible to receive benefits.

Also: Time for a disability impact reality check

The waiting period is not the same thing as the "elimination period." The elimination period is the window of time before benefits payments can start. For some employees on short-term disability, the elimination period might be eight days; for others it could be as many as 30. For long-term disability, the elimination period may be between 90 and 365 days. The critical thing for brokers, employers and their employees to understand is that no disability benefits will be paid until the elimination period is satisfied. 

Planning for the long term

In the insurance business, long-term relationships and financial stability are critical components to any relationship. After all, long-term disability payments can last for years. That why brokers and employers should measure an insurance carrier's longevity and stability by reviewing its independent financial ratings such as A.M. Best or Standard & Poor's. Comdex scores could also be a part of a formal evaluation process. While the scores don't impact coverage costs to the employer or employee, it's an important consideration when it comes to paying a claim.

It's important for brokers to discuss these factors when it comes time to select an insurance carrier. Having these critical contract conversations is the basis of providing the best possible experience to the employers you serve and avoiding disappointment later. When you provide a holistic understanding of how protection works, everyone benefits.

Jim McGovern has led the OneAmerica Employee Benefits division since January 2014. He has more than 30 years of industry experience.