Legal Guide

Understanding Voluntary Long-Term Disability Insurance

Disability insurance provides a source of much-needed financial protection in event of a serious injury, illness, or other medical impairment. According to data provided by the Bureau of Labor Statistics (BLS), approximately 35 percent of the U.S. workforce has some form of private disability coverage from an employer. Voluntary long-term disability insurance can also be purchased on the individual market. In this article, you will find an overview of some of the most important things that you need to know about long-term disability insurance.

Voluntary Long-Term Disability Insurance: Explained

Similar to other types of disability insurance policy, voluntary long-term disability coverage is designed to help a policyholder/beneficiary replace a portion of their income in the event that an injury or illness prevents them from working on a full-time basis. The key thing to know about voluntary long-term disability insurance is that it is optional and paid for entirely by an individual employee. In other words, no one is required to obtain voluntary long-term disability coverage nor does an employer contribute to the premiums. 

Note: Voluntary long-term disability policies are often not regulated by the federal Employee Retirement Income Security Act of 1974 (ERISA), Instead, your rights and responsibilities arise largely under state law. You often have less time to file a claim and/or file an appeal for non-ERISA plans.

Voluntary LTD Benefits are Tax-Free

Unlike some other types of disability coverage, voluntary long-term disability insurance is generally paid for by an employee who is using their own post-tax dollars. As a consequence, this means that any benefits paid out through a voluntary LTD plan should be tax-free. The employee was already “taxed” before they paid their premiums. The scope of an employee’s voluntary LTD benefits will depend on the specific terms of their coverage. Most often, LTD benefits are designed to cover somewhere between 35 and 66 percent of an employee’s pre-disability average income.

Always Follow the Procedures of Your Plan When Filing for Benefits

If you are preparing to file for voluntary long-term disability benefits, it is essential that you carefully follow the procedures in your policy. As voluntary LTD policies are often not regulated by ERISA, these types of plans are often less “standardized”—meaning there may be some unique rules or procedures that govern your claim. Still, you should always keep the following considerations in mind when filing for voluntary LTD benefits:

  1. Obtain and complete the long-term disability application form from your insurer;
  2. File for SSDI benefits or SSI benefits if required by your plan;
  3. Follow all relevant deadlines for filing for benefits;
  4. Make sure that your claim is well-supported by medical/vocational records; and
  5. Take immediate action to appeal an adverse decision.

If you run into any issues in the disability claims process, you should not hesitate to seek professional guidance and support. An attorney can help you pursue all financial benefits that may be available. Remember you can choose who represents you while pursuing SSDI benefits and your voluntary long-term disability benefits.

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