Mets Day 1037: Disability insurance stories

More than 15 years ago, when I was practicing intellectual property law full time as a partner at a big DC firm, I had a meeting with my insurance agent, Dave Morris. He specialized in counseling partners at big law firms regarding life and disability insurance. Many big law firms require their partners to carry a type of "key man" life insurance, payable to the firm in the event of accidental death. This agent offered such policies to law firms, and also offered additional types of insurance to individual partners. Dave is an independent agent, so could shop around and offer policies from multiple insurance companies.

Dave proposed that I consider purchasing a type of disability insurance called "own occupation disability income replacement insurance." He explained that, with this type of insurance, if ever I was to suffer a disability that would preclude me from making a living doing what I was doing (e.g., first chair patent trial lawyer), then the insurance would kick in to provide for my family. I would not be required to take a lower-paying job or change my occupation: if I could not continue doing my own very specific occupation due to my disability, then the insurance would pay out. And because I was paying for the insurance out of my own pocket with after-tax dollars, any insurance proceeds would be tax-free. (This article from Motley Fool discusses private disability insurance in more detail.)

I thought about it for a while, and did some research. I learned that the odds of having a disability were greater than an accidental death, and yet I hadn't hesitated to purchase life insurance. I decided to sign up for the own occupation disability income replacement insurance. Over time, during our annual insurance reviews, Dave presented opportunities to purchase additional coverage. Sometimes I added coverage, and sometimes I declined. I understood that the best kind of insurance was the kind I never needed. But we buy it for a reason: to provide an economic aid in time of need.

(In November 2011, I purchased long-term disability insurance for Jennifer and myself, which would pay $200/day in the event that either or both of us could not perform two or more of the five defined activities of daily living. A week after I signed those applications, I saw blood in my urine, which started me down the rabbit hole of bladder cancer. But this post isn't about long-term disability insurance - it's about my experience with own occupation disability income replacement insurance.)

After I was diagnosed, I kept on working. I kept working along through my neoadjuvant chemotherapy.  I planned to keep working after I recovered from my radical cystectomy, when my bladder and prostate was removed, and neobladder was built. I began to reconsider that plan when my cancer was found to have spread into my lymphatic system. Nevertheless, I tried to come back to work after my surgery, even leading a three-week long patent trial in late 2012. But my neobladder continued to leak at night no matter what I did. With every leak, I would bolt upright in bed (something about the proximity of a nerve to my rearranged urethra), and I would be unable to go back to sleep. After months of battling sleep deprivation, together with battling metastatic cancer, I found that I was unable to continue in my career with the same level of excellence and dedication as before.

Under my law firm's partnership agreement, a partner who becomes disabled will be paid for at least the rest of the calendar year at the same amount as if he had been working for the year. It was a kind of short term income replacement insurance. So for 2012, I did not suffer any loss in compensation, even though I worked less than half of the year.

Near the end of 2012, I submitted disability applications to the two insurance companies (Unum and MetLife) that underwrote the four own occupation disability income replacement insurance policies that I had purchased. I documented my cancer journey to date, mailed more than a foot-thick stack of medical records, provided copies of earnings records and tax returns, and gathered letters from my doctors and my work. I had long phone conferences with claims examiners. Dave (the insurance agent) and my law firm supported my application. The process was not acrimonious in any way - all of the insurance company employees were unfailingly courteous, professional, and sympathetic. Eventually, both companies agreed that I met the policy requirements for own occupation disability coverage. Even though I might have been able to work at least part time doing something other than first chair trial work, that was not relevant to whether the policies would pay out. The insurance companies began to pay out as required by insurance contracts. One of my policies even required the insurance company to make contributions to a retirement plan, since I would no longer be doing that.

The policies all provided that, as long as my ongoing earnings are less 20% of my pre-disability earnings, then I am classified as "totally disabled," and will be paid 100% of my monthly benefit. Any dollar that I am paid over that 20% limit would result in a dollar-for-dollar reduction of insurance benefit. Because my insurance benefits are not taxed, and the way the offsets work, it turns out that there is no economic incentive to work (and earn) anything less than 65% of my pre-disability earnings. In other words, assuming I was able, if I was to go back to working half-time (and being paid half of my pre-disability income), I would actually be netting less than if I was being working (and being paid) 20% of my pre-disability income.

My law firm and I agreed that, beginning in 2013, I would continue as an equity partner, but would be paid a flat amount equal to about 15% of my pre-disability income. I have a substantial amount of deductions from that flat payment, including various professional expenses, life insurance, and health insurance. (As as a partner, or co-owner, there is no employer contribution for health insurance. I pay 100% of the cost for family health insurance overage, which runs in excess of $20,000 per year). 

Between the private disability insurance payments and the ongoing income from my firm, all of my family's financial needs are being met. I have been profoundly grateful that I acted on my insurance agent's advice to purchase own occupation disability income replacement insurance. I have been relieved of the need to continue to work to provide for my family, giving me extra time to enjoy my remaining days on earth.

There have been some hiccups and kinks in the process of continuing to receive payments under my own occupation disability income replacement insurance policies, however. MetLife insists that it is unable to make electronic deposits, but must mail a live check each month. Unum initially agreed to "conditionally" make payments under my policy, reserving the right to change its mind. After I and my agent pressed Unum for why it was reserving its rights, it agreed to withdraw the conditional designation. Early on, the MetLife claims administrator was interested in whether I was participating in vocational rehabilitation. It took several conversations with the claims administrator, and the intervention of my insurance agent with some of the MetLife higher-ups, for MetLife to figure out that whether or not I was participating in vocational rehabilitation was utterly irrelevant to whether it should be paying out under my policies. And it took MetLife more than six months to begin investing my "new" retirement savings into the mutual finds that I had selected, thereby missing a significant amount of gains.

The events that triggered this blog post started last fall, when Unum sent me a letter claiming that I had been overpaid by about $14,500 in 2013. In a later phone conversation and letter, the Unum claims administrator told me that she and one of their in-house actuaries had reviewed my 2013 K1 from my law firm and had determined that in 2013 I had been paid about $2000 over the 20% threshold of pre-disability earnings. I was sent the calculations, which I reviewed, but which made no sense to me. Unum said it would start withholding 25% of its monthly payments until the $14,500 was recouped. After some digging, I determined that apparently what put me over the 20% threshold was the fact that my 2013 K1 erroneously included in my overall compensation the cost for a reserved parking place at my downtown office (about $2500 - parking is expensive in DC), even though I had given that up in 2012. Despite explaining and providing additional documentation to Unum about the cost of parking in DC, I was unable to persuade the Unum claims administrator to change her mind. (To this day, even if Unum was right, I do not understand how my getting paid $2000 over the 20% threshold meant that I was overpaid $14,500 in a year.)  Frustrated, I forwarded the letters and calculations to my insurance agent, Dave, who agreed to press my case. To his great credit, he continued to persist, eventually raising this issue with Unum's senior management.

Today I received a letter from Unum. It stated that Unum had reversed the decision to recoup $14,500 from my 2013 payments. In addition, the letter stated that, in reviewing my claims payments, Unum had determined that it improperly delayed making payments under my policy, and that I should be paid an additional $25,000, plus $500 in accrued interest. I checked, and found that yesterday Unum made a $40,000 direct deposit to my bank account. Go figure!

I told Jennifer about this, and she said, "Woo-hoo! Where do you want to go on vacation?" (Instead, I've used the money to pay down our HELOC.) Each of the kids laughed and thought it was a great turnaround. This story reinforces what my firm's insurance practice group tells clients: the denial letter from the insurance company is never the end of the matter, but is only the beginning. The moral: when an insurance company says no, don't give up. Keep pressing. Get someone to help make your case. You never know how things might turn out.