How Does Premium Payment Affect Disability Insurance Coverage?

The manner in which an insured chooses to pay their disability insurance premiums could have a major impact on their disability claim. The way an insured chooses to pay their premiums — either personally, through employer contributions or a salary allotment plan — not only impacts the taxability of those benefits when they file their claim, but also the law which governs their claim should they one day find that they need to challenge the disability insurance company’s denial of benefits in court. If an employer contributes to the plan, or if the insured chooses to participate in a salary allotment plan where the employer deducts the premiums from their pay, disability insurance companies will attempt to argue that these claims and policies are governed by ERISA, which would preempt any state law causes of action that they could bring, as well as damages and overall financial exposure for the disability insurance company. This is information that the disability insurance company never divulges when the insured first purchases their policy, and often information that the insurance sales agent is often completely unaware of. Also, if premiums are paid with post-tax dollars, then the monthly benefit should not be taxable to the claimant.