Restrictions Linked To An Employer Provided Long Term Disability Policy

A disabled employee has two options to choose from, in order to obtain a replacement income. One choice demands the purchase of an individual policy. The alternative involves reliance on an employer-provided long-term disability plan.

Basic features of an employer-provided plan

The plan remains available to disabled employees as long as the employer pays the premium. A disabled employee that has chosen to take advantage of the employer-provided plan’s availability receives benefits that have been paid for by the employer. Typically, each benefit equals 60% of the disabled employee’s former salary.

Problems associated with a policy/plan that the employer has paid for:

Personal injury lawyer in Huntsville know that problems go unnoticed until the covered employee has decided to file a claim. Then the employee must pay a tax on each benefit received. Remember, each benefit serves as replacement for the income that the disabled employee is no longer receiving. Because the government taxes any employee’s income, also taxes the benefits that were paid for by the employer-provided long-term disability policy.

An alternative approach that all employers can consider:

The employer grants the employee the right to choose one of 2 different plans/policies. Both guarantee the delivery of long-term disability benefits. Yet each of them specifies a different method for delivery of that same benefit. The insurance company refers to the 2 different methods as alternative options.

Employees that elect one option agree to have each of their delivered benefits contain pre-tax dollars. That means that the same benefit does not get reduced in size, before it reaches the hands of the recipient (the disabled employee). The absence of a reduction reflects the fact that the government has the right to tax the money that must serve as the replacement for an employee’s earnings.

Any disabled workers that decide to go with the second option have agreed to accept delivery of a benefit that contains post-tax dollars. In other words, those that elect the second option anticipate delivery of a benefit that has been reduced in size. That size-reduction reflects the amount of tax money that must come from the disabled worker’s benefit.

What workers must consider, when deciding between the 2 options:

While the one option guarantees delivery of a larger benefit, it also forces the recipient to plan ahead, regarding the which expenses will get covered by each benefit check. If a disabled worker tries to cover too many benefits, there will be no money left for payment of the government’s taxes.

Of course, those workers that agree to accept the post-tax benefits do not have to plan for the payment of taxes. Each of them can spend the received money as a way to cover whatever expenses might have arisen.