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Did you know that there are different types of disability insurance?

Disability insurance may be available through mortgage companies, credit card companies or banks to protect your mortgage, line of credit or loans. Disability insurance may be available to you if you are an employee, member of an Association or member of a Union. It is also possible for you to purchase disability insurance directly from an insurance company. This is often done through an insurance broker or financial advisor.

Although most people are quick to purchase life insurance, they do not realize that, particularly for individuals younger than 65, their chances of becoming disabled and being unable to work are far greater than their chances of dying.

Eligibility for insurance

Eligibility for group disability insurance is secured by virtue of an employment relationship or through membership in an association. The insurance company will contract directly with the employer or the association and the eligibility for insurance will be provided for under the policy based on the employee’s hours worked, employment or membership status or other factors.

The policyholder of a group disability plan is the employer or the Association and not the individual employee or member.

Membership in a Union may also qualify individuals for coverage under a long term disability plan. The long term disability terms may be contained in the Collective Bargaining Agreement or in a separate plan or policy document.

Individual or private disability insurance, on the other hand, involves an individual contracting directly with an insurance company for insurance coverage. The policyholder is the individual who enters into a contract directly with the insurance company.  This is similar to how a person might purchase home or auto insurance.

What is the difference between a group disability benefits plan and individual/private disability insurance?

There are important distinctions between a group benefits plan and individual insurance coverage. We have set out the key difference below:

Cost

Group Insurance: The cost of group insurance might be lower for an employee, Association or Union member particularly if the employer, Union or Association is contributing towards the premiums or paying the premiums.   Even if an employee is paying premiums for group long term disability coverage (perhaps they are being deducted from the employee’s pay cheque), the cost of premiums may still be lower than individual coverage but this could also depend on what individual coverage is purchased.  

Individual Insurance: The cost of individual coverage is usually higher than group coverage.   This is often because the benefits offered in individual or private policies are more extensive.

Application for Insurance

Group Insurance: The application process is simple. It usually involves the employer, Union or Association adding the new employee, Union or Association member to a list of covered individuals.   The employee, Union or Association member may have to complete enrollment forms in order to become covered under the insurance policy or plan.

Individual Insurance: The application process is more complicated.   Individual disability insurance policies are usually medically underwritten. Medical underwriting is the process whereby an insurance company assesses the risk of insuring the individual by reviewing that individual’s medical information, health status and health history.    The insurance company’s objective is to determine whether it makes economic sense to insure the individual and if so, what premium to charge based on various individual risk factors. When applying for individual insurance coverage, individuals will be asked to complete a medical questionnaire and depending on how they answer those questions and depending on the amount of coverage being applied for, they may be required to undergo a paramedical examination.   A paramedical examination usually takes the form of answering an even more detailed questionnaire and also submitting to basic medical testing administered by a medically trained individual, such as a nurse.  The paramedical examination usually includes, measuring height, weight, blood pressure and can include blood tests and urine samples.   The insurer may also request medical information or request that forms be completed by the insured’s treating physician, usually a General Practitioner.  

Flexibility of Coverage

Group Insurance: Given that the policy or plan is a contract negotiated by the employer, Union or Association, there is very little flexibility. Standard clauses are often in place and there is no room for customization. 

Individual Insurance: An individual or private policy is a contract negotiated between the individual insured and the insurance company. This allows for more flexibility and customization. Usually, this customization takes the form of optional “riders” which are essentially benefits that can be purchased to provide various coverages beyond what may be contained in the standard individual disability insurance policy and which may modify the coverage in the standard policy.   There are many different types of optional riders for individual disability policies. Some examples include: An Own Occupation Rider changes the definition of disability to relate solely to the insured’s occupation at the time a claim for disability is made. This is particularly important for professionals who acquire a specific skill set as part of their occupation. Not all Own Occupation Riders provide the same level of coverage. An Own Occupation Rider with a clause that stipulates that the insured may not be gainfully employed in an occupation other than their regular occupation may prohibit a claimant from working in any capacity after a disability claim has been filed. An “Own Occupation Rider” that allows for a claimant to be employed in an occupation other than their regular occupation would mean that the claimant would be entitled to work in something other than their own occupation and still qualify for disability benefits coverage. Partial and Residual Disability Benefit Riders allow for payment of disability benefits when an insured is still working in their own occupation (i.e. not totally disabled) but not at full capacity. Different insurers may word the Partial and Residual clauses differently and it is important to bear in mind that this may have significant implications for the insured depending on the nature of the insured’s business or practice model. Future Income Option Riders allow for the purchase of additional insurance over time. This is particularly important for young professionals and new business owners whose income is likely to increase over time. With this Rider, they are guaranteed the ability to obtain additional insurance to cover increased income without having to submit to a medical underwriting process each time they do so. Cost-of-Living Riders index the disability benefits an insured is entitled to receive over time. The indexing usually occurs annually and may be tied into the percentages set out in the consumer price index (CPI), or may be a set percentage. Lifetime Benefit Riders ensure that policies continue to be payable beyond the usual maximum end date of age 65. This is particularly important for professionals and self-employed individuals who have a tendency to work beyond age 65.

Taxability

Group Insurance: If an employer pays premiums, the disability benefits received if a claim is approved would be taxable. If the premiums are paid by the employee, benefits are non-taxable.

Individual Insurance: Since premiums are paid by the individual insured, benefits are non-taxable.

Definitions of Disability

Group Insurance: Usually the test consists of two definitions; “Own Occupation” and “Any Occupation”. The first test usually lasts for the first 24 months from the date last worked (although it could be 12 months or 36 months) and the insured has to show that he/she is unable to work in his/her own occupation.   After that the definition of disability changes to whether the insured is capable of working in any occupation based on his education, training and experience. There are often slight variations in the wording of the disability tests depending on the plan/policy. 

Individual Insurance: As indicated above, the definitions of disability can be customized with the use of optional riders.

Portability

Group Insurance: Coverage under a group plan ends when employment ends or membership in the Union or Association ends. (This is if the person is not on an existing claim). In other words, you cannot generally take your plan or policy with you when you leave your employer.  

Individual Insurance: The individual is the policyholder and it, therefore, remains with the individual, no matter where they are employed or even if they are self-employed.

Denial of Claims

Group Insurance: Although claims can be denied for many reasons, in a group policy, a claim could be denied on the basis of a pre-existing condition exclusion clause.   The pre-existing condition exclusion will usually apply if you make a claim for disability benefits within the first year after your coverage took effect (this time period could vary, but it is typically it is the one year period after the effective date of coverage).   If the insurance company determines that you saw a doctor or had any treatment related to your disabling condition prior to when your insurance took effect, it can deny your claim based on the pre-existing condition exclusion.     This is a very technical area and much turns on the interpretation of the clause in the policy.

Individual Insurance: Although claims can be denied for many reasons, individual disability claims can be denied on the basis of misrepresentation. Misrepresentation is when the insurance company determines that the individual failed to disclose their medical information at the time they applied for the coverage and had full disclosure been made, the insurance would not have been offered to the individual. It is critical that individuals provide full and complete medical information at the time of insurance is applied for to ensure that the policy is not later voided, and benefits denied based on the individual’s misrepresentation or non-disclosure. Once a claim for disability benefits has been submitted by an individual, the insurance company will usually investigate the claim by requesting medical records that precede the date of the disability. The insurer will then analyze those medical records to determine whether the insured fully disclosed their health history at the time they applied for the insurance coverage and if not, a claim will be denied on the basis of non-disclosure and misrepresentation. The insurance company’s ability to deny a claim based on material misrepresentation and to render a contract void ab initio takes on a different complexion depending on when the claim is submitted to the insurer. After a policy of insurance is issued, there is a two year contestability period which starts to run from the effective date of insurance. This is set out in the Insurance Act. If a claim is made within those two years, the insurance company can deny the claim and void the policy based on a material misrepresentation even if the misrepresentation was innocent or negligent. If the claim is made after the two-year contestability period, the insurer must establish that the material misrepresentation was fraudulent. To constitute fraud, a material misrepresentation must have been intentional, made deliberately without belief in its truth or, made with a reckless disregard for the truth.

At MK Disability Lawyers, we have worked extensively representing professionals and other self-employed people across Ontario in their individual disability insurance disputes. Our three partners have over 50 years of cumulative experience litigating individual disability benefit claims disputes. We understand the nuances and complexities of individual insurance policies and how to effectively and strategically resolve individual disability insurance benefit disputes.

MK Disability Lawyers represents professionals and business owners whose disability claims have been denied by insurance companies. We appeal denials of claims and litigate disputes under individual disability policies regularly and have carefully analyzed individual/private policies from all of the insurance companies providing individual disability insurance. Our knowledge of the claims process, the approach to litigation taken by insurance companies and our extensive experience working with professionals and self-employed individuals, puts us in a unique position to identify strategies to combat denials and terminations.

If you have an individual/private long term disability policy and your claim has been denied for misrepresentation or for any other reason or if you have been denied under a group insurance plan, you should discuss your long-term disability claim with an experienced lawyer. MK Disability Lawyers LLP are experienced lawyers dedicated exclusively to the practice of disability insurance litigation and broker’s negligence. We would be happy to provide you with a free consultation.  Please contact us online or by calling us at 844-697-4600.

The preceding is not intended to be legal advice.  This blog is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice.  By using this blog, you understand that there is no solicitor-client relationship between you and the blog publisher.  The blog should not be used as a substitute for competent legal advice from a licensed lawyer in your jurisdiction.  If your disability claim has been denied and you require legal advice, contact a lawyer specializing in disability law.