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Earnings LossesAs we are all aware, in the last several years Unum began reversing several of its claims management tactics for IDI claims. Probably seen as beneficial boosts to profitability, Unum’s calculations regarding “Residual Disability obviously are not now what they used to be.

First, let me say that ALL IDI disability contracts are, in a general sense, “income replacement” policies, meaning that in order to qualify for benefits insureds would need to prove loss of income.

Secondly, any IDI policy that contains “Residual Disability” provisions or riders is technically NOT an “own occupation” policy. Policies that contain BOTH an “own occupation” definition and “residual” definition have dual definitions of disability depending on the actual wording of actual “residual” provisions, many of which require earnings losses of at least 20%. There are many insureds who misunderstand “own occupation” and still believe they can receive 100% of total benefits if working in another occupation.

In the past, when insureds reported earnings over 80% of pre-disability earnings, Unum just didn’t pay them for that month. Many insurers do the same thing – do not pay for months over 80%, and pay for months when there is a 20% or more loss of earnings. This is a good way to manage residual disability because there is no disruption of the claim.

However, given Unum’s current position outlined in a recent appeal denial, Unum’s tactics are more favorable to itself than to the insured. When “residually” employed insureds earn greater than 80% of pre-disability earnings:

  • Unum denies the claim and demands repayment of any benefits received for months when there was not a loss of income;
  • Unum automatically opens a new claim and demands insureds satisfy a new Elimination Period before being eligible for continued benefits.

Consider. An insured on claim with Unum went over 80% of pre-disability earnings in the months of January, May, and September. The claims handler will deny the current claim in January, collect overpayment for prior months, if there is one, open a new claim with a 90-day EP. New benefits will begin April 1, but in May, the insured went slightly over 80% earnings. Again, the second claim is denied, and a new 90-day EP without benefits is in effect. New benefits begin on August 1st, but again in September the insured didn’t have an earnings loss so the third claim was denied and a new 90-day EP was begun on a fourth.

Depending on the situation, including the recent appeal cited in this article, it becomes apparent the insured is paying Unum back to have a disability claim instead of Unum paying him. In any event, Unum denied this insured’s appeal revealing its intent to treat ALL residual IDI claims in basically the same way. This means that the door is also opened to more and more Unum administrative error in managing multiple claims, EPs and overpayments, keeping insureds “on edge” while they are trying to work while on disability.

It has also become increasingly clear to me that many highly paid IDI insureds have gone to great lengths to…let’s say restructure their earnings sources by setting up separate corporations and running income from other sources through the corporations.

While these types of “dummy corporations” do provide tax benefits, private disability insurers take special interest in their investigations to “check it all out.” Many earnings sources from “alternative tax structures” are included in income causing it to appear there are little to no real earnings losses. Of course, I am not referring to “passive income”, such as rental or investment income and capital gains, but on occasion it becomes very difficult for insurers to pass up the opportunity to allege certain income isn’t “passive” so earnings can be included in residual calculations.

Physicians, and other medical. professionals, in particular, seem to be restructuring for tax advantage more than any other occupational group with IDI policies. In addition, highly paid, or self-employed insureds also have their hands and feet in many other corporations of differing structure (partnerships, S Corporations), many times in other occupational fields. This income, if non-passive will also be included in income.

Unum’s appeal decision to decide in its own favor means that ALL IDI insureds, working part-time in their own, or any other occupation, should TAKE SPECIAL CARE not to exceed 80% of pre-disability income, insuring a continuous earnings loss of at least 20% (or, that indicated by their own policies). Occasionally, Plans and policies say, “indexed-pre-disability earnings” which takes inflation into account.

Insureds who have their hands in many other sources of income might want to take a second look at policy provisions to determine what will be considered income for private disability purposes. In my experience, depending on each individual claim and situation, “restructuring” income sources for tax purposes, with multiple involvement in other businesses and industries, is not always advantageous for private disability purposes.

Although the multiplicity of sources may be producing income when NOT disabled, for disability purposes, insureds still need to prove at least a 20% earnings loss when filing claims for private disability, including non-passive income from all sources. IDI insureds might want to think about whether its all worth it, or, more simply put, worth the risk of becoming disabled and having to show income from all sources, some passive, some non-passive.

In the actual case cited, Unum alleges it has a contractual right to deny claims when insureds exceed 80% of pre-disability earnings. Therefore, it’s my recommendation that all IDI insureds take second looks at their policies to determine how this is going to play out should they become disabled.

IDI insureds already working should be ever mindful to always meet contractual earnings loss percentage provisions.