Disability Insurance FAQ
1. What is a disability policy, and where do I find a carrier?
ANSWER: Disability policies are insurance policies sold to individuals whereas you enter into an agreement to pay a premium for a period of time, in exchange, you receive a policy that provides you with monthly, quarterly, or annual benefits for a certain period of time, or for life, so long as you meet the criteria for disability under the contract. Many business professions, attorneys, doctors, chiropractors, receive offers for these policies through their membership associations, i.e. American Bar Association, American Medical Association; however, it should be understood that in most cases, these offers for coverage are from independent insurance companies who advertise by and through these associations.
2. Can certain injuries be excluded in disability contracts?
ANSWER: Yes, as a matter of fact, the interview and application process can be tedious because the insurance company wants to know what injuries you have or have had. This way they can evaluate the propensity for relapse of the injury, which ultimately may result in a rider excluding or reducing benefits for relapse of prior injuries for a period of time of the policy or for the entire duration of the policy. In most cases, these injuries are not arbitrarily chosen, but rather generally based on a pre-existing injury or condition that could ultimately return in time, e.g. back disorder, mental condition or disorder.
3. How do these cases get removed from state court to federal court?
ANSWER: The standard for removal is very low, requiring only a good faith basis to transfer the matter to federal court. The case is transferred solely by noticing the removal to your attorney as the claimant, and then filing the action in federal court. Additionally, counsel for the insurance company wants to remove the matter to federal court because of the more beneficial federal case law to the insurance company, as opposed to state court, Florida, which is better for the claimant/insured/plaintiff.
4. What is the basis to bring the case back from federal to state court?
ANSWER: Lack of jurisdiction. In order to remove a disability policy case to federal court, the parties must be from different states, and the amount of the action must exceed $75,000.00. A case can be remanded to state court where you can show as the attorney that the matter filed was less than $75,000.00. In most cases, the parties are in two different states, i.e. the insurance company is in New York or Connecticut – which is where most of the disability insurance companies are located while the Plaintiff is a Florida resident.
5. Can I still file the lawsuit in Florida if I entered into the disability policy in another state, before I moved to Florida?
ANSWER: Yes, because you currently reside in Florida, and you have made payments in Florida, and the company has maintained a policy with you as a Florida resident, you can file the action in Florida State Court.
6. How can my case be brought back to State Court when the total amount of benefits due under my policy exceeds $75,000.00, and does it cost me anything to get it removed back to State Court?
ANSWER: The basis for calculating damages for the filing in federal court is not all amounts due under the contract, but rather the amounts unpaid to date at the time of removing the case to Federal Court. Therefore, if you have a $5,000.00 per month policy, and you have not received these benefits for one year from the time of denial of coverage, then the total amount of your case is $60,000.00 at the time of filing ($5,000.00 times 12 months). Thus, less than the amount required to remove the case to federal court.
ANSWER: No, the case incurs no additional expense for the remand to State Court.
7. What are the various avenues of relief I have against the insurance company for filing a lawsuit?
ANSWER: There are two ways that these cases can be resolved, resolution by settlement, either by negotiation or be mediation, or by trial. In the event of the latter, and the case goes to trial and we are successful, the insurance company is responsible for payment for the amounts due from the date of denial of payment or discontinuation of payment through the date of verdict; additionally, the attorney will also be awarded attorney’s fees from the Court. Otherwise, the other avenue of resolution, settlement, will result in a buyout of the contract for which the terms are negotiated between your counsel and the counsel for the insurance company based on a percentage of the total value of the contract.
8. Whose decision is it to settle or to go to trial, mine or my attorneys?
ANSWER: The client makes the decision as to whether they would like to settle or continue their case through trial. We provide you with all avenues of resolving your case. We will work out a buyout of your policy by settlement, and we will advise you as to whether the settlement is worth taking or not. However, it is your choice whether you would like to take any negotiated settlement, or continue to trial.
9. Can the court require the insurance company to buy out my disability contract and pay me for the entire term of the contract?
ANSWER: No, the Court does not have the power to force the insurance company to purchase the contract back from the insured; rather only pay the amounts due to the insured from the date of denial or discontinuation of benefits to the date of the verdict.
10. Why is the settlement value of a buyout for a disability case more than the amount sought through trial?
ANSWER: The settlement for a buyout of your contract is a higher amount because the insurance is buying back your contract through offering a total amount due under all payments made under the contract less a discount for the purchase. In the alternative, winning by verdict will only provide you with the unpaid amounts of benefits due to you from the date the benefits stopped to the date of the verdict.
11. If I win in Court by trial, can the insurance company decide not to pay my benefits under the policy again?
ANSWER: Yes, even though you were successful in trial, the insurance company might again stop paying your benefits after the verdict. Should the insurance company stop making payments relying on the same term that they had lost in Court, you would have a different claim against the insurance company for bad faith; however, the insurance company could deny benefits for a completely different basis that was not decided by the Court, or in the alternative not brought up in the original action, which would require filing the same type of lawsuit that was filed on your behalf prior to the new breach by the insurance company.
12. What is a cost of living adjustment in the contract?
ANSWER: The cost of living adjustment, otherwise known as “COLA”, is a term that adjusts the benefits based on the rising cost of living and inflation. For example, if you receive monthly benefits in the amount of $5,000.00 per month, today’s value of $5,000.00 is more than the value of that same amount ten (10) years from now. COLA will adjust that amount so in ten (10) years you will receive the value of $5,000.00 as it is today in the future. Therefore, and in pure example, $5,000.00 may be the same as $7,000.00 ten (10) years from now.
13. For buyout purposes, how do you calculate the total value of the contract?
ANSWER: If the contract has a COLA then the value of the benefits is calculated based on the total term of benefits under the contract with a discount to the insurance company for buying out the agreement, which can be further discounted based on the likelihood of recovering from the underlying injury giving right to benefit. If there is no COLA, than the total value of the agreement is discounted based on the above factors, along with the depreciation of the dollar throughout the term of the agreement.
14. Should I get a cost of living adjustment term in my contract, and will it affect the amount of my premium?
ANSWER: Absolutely, to ensure that you receive the same level of benefits tomorrow as you receive today.
ANSWER: Yes, the premium for a COLA adjustment will be higher than a policy without the adjustment. Therefore, you must be willing to spend the additional amount for the COLA adjustment.
15. Do I have the right to have an attorney review the terms of the disability policy prior to executing the policy?
ANSWER: Yes, by signing the agreement, you are bound by the terms of the agreement, and therefore, you should consult with our firm as to the contract terms, as well as the representations made by the insurance agent on how those terms would affect you should you have to make a claim for benefits under the policy. In many situations, there are confusions in the interpretation of reduction and exclusionary riders, mostly in part due to the fact that the insurance agent failed to properly or adequately explain the affects of these riders. It is important to write down everything discussed with your insurance agent/salesman about the proposed contract and go over these matters with an attorney prior to executing the agreement.
16. Do I have to continue making payments on the premium when I make a claim for denial of benefits?
ANSWER: YES, if you are receiving bills for the payment of premium, you should consult your attorney about whether payment should be made, and not make that decision on your own. In some cases, your attorney may request that you make the payments directly to the insurance company and keep record of all payments, in others, your attorney will open an account with the Court Registry and payments will be deposited in the registry pending the outcome of your case, finally, your attorney may direct you not to make payments in special circumstances surrounding the claim.
17. Will I get the premium payments that I make during the course of my lawsuit back once the matter is resolved?
ANSWER: If the case is resolved in your favor by verdict at trial, you should receive all payments made on premiums during the course of your case; in most cases, this is the same in when the case is resolved by settlement. If the matter is lost, than the payment will be retained by the insurance company or will be released from the Court Registry to your insurance company.
18. Do I not make payments when receiving benefits?
ANSWER: Yes, the terms of the agreements for these policies provide for the discontinuation of premium payments while receiving benefits from the insurance company. However, in the event you no longer meet the criteria for disability under the agreement, you will have to start making payments again for premium.
19. Are the criteria for disability the same for all disability policies?
ANSWER: No, the insurance company’s contract will provide you with the criteria for meeting various disability standards as defined under the contract.
20. How do they know that I am continuously disabled after I have made the claim for benefits and they have started making payments of benefits to me under the policy?
ANSWER: The policy will provide for progress reports of your condition, which may be sent to you from the insurance company, or must be sent by you to the insurance company during the course of your disability. The former is generally the more prevalent practice for updates than the latter.
21. Will I have to pay taxes on benefits that I receive as a result of a verdict or buyout of my contract by the insurance company?
ANSWER: No*, so long as the settlement and the verdict specifically state that the payment or buyout is for the benefits under the contract, it will not be considered income.
*This can vary depending upon the state in which you reside and other factors may also have an affect as to whether any amounts received will constitute income; the best advice is to speak with your accountant, or if you do not have an accountant, seek out an accountant who can answer as to whether you will have to pay taxes on any amounts received from a buyout or verdict.
22. How do I retain your firm in the event I am denied benefits by the insurance company and what does it cost me for your services?
ANSWER: You contact our firm for a free consultation; bring a copy of the policy, including the declaration page, and any riders or addendums, as well as your application, and any correspondence between you and your insurance company. If you have record of payments, bring that along as well. WE DO NOT GET PAID UNLESS YOU GET PAID, meaning if we do not collect for you, there is no compensation for our services.
23. Can I retain your services for the review and assistance with entering into a disability policy?
ANSWER: Yes, our firm can assist you in the review process of entering into a disability policy with an insurance company on an hourly basis, or a flat fee, determined on a case by case basis and at the sole discretion of our firm.
FOR ANY OTHER QUESTIONS, OR TO LEARN MORE ABOUT OUR QUALIFICATIONS AND EXPERIENCE, PLEASE FEEL FREE TO CONTACT OUR FIRM AT YOUR CONVENIENCE.