What Does Coordination Of Benefits Mean?

What does coordination of benefits mean? This question was posed to Mark Webb, Executive Vice President, Governmental Relations, of Employers Direct Insurance Company. Webb explains, "A long term disability...

This question was posed to Mark Webb, Executive Vice President, Governmental Relations, of Employers Direct Insurance Company. Webb explains, "A long term disability insurance program - whether public, such as workers' compensation, Social Security, or a state disability program, or private such as a group policy offered by your employer or an individual policy you purchase - is likely to contain a provision that coordinates the benefits paid to you with benefits you are receiving from other sources that cover the same loss of income due to disability. This is referred to as a 'coordination of benefits' provision or COB. It is important to understand that benefits you may feel you are entitled to could be reduced by payments you are receiving from government programs or other employee benefits to which you are entitled."

"The rules governing coordination of benefits are usually set forth in both contracts and state laws or regulations," Webb explains. "If you are an employee of an employer who offers sick leave, for example, you may be required to exhaust all of your accrued sick leave before becoming eligible for disability benefits. Since sick leave is a form of short term disability insurance, this is one way an employer will coordinate benefits with disability insurance to make certain you are compensated for your lost income, but do not receive more income than you would have normally received had you not been injured or ill."

"Government programs have very strict coordination of benefits provisions," Webb continues. "For example, if you live in California and are injured at work, you cannot obtain benefits from both the workers' compensation program and the state disability insurance (SDI) plan. In such cases, the programs usually work out the coordination between themselves and you will not suddenly be forced to pay money back to one insurer or the other. If, on the other hand, you find yourself with an unexpected windfall after becoming disabled, the odds are very high that this is a mistake if there are government funds involved and the sooner you can resolve the confusion the better."

"In the case of private plans," Webb goes on, "coordination of benefits may also occur if you have several plans. These plans could be a group plan sponsored by your employer, a private plan that you have purchased, or a group plan you are eligible to receive benefits from that is sponsored either by an association or a financial institution in which you are a member. In this case, the contracts will provide a formula whereby each reduces benefits in a pro rata amount. The policy provisions that set forth this calculation are usually subject to approval by your state department of insurance. While COB clauses are designed to make certain you do not obtain more benefits that those necessary to replace your lost income, state regulation is designed to make certain you receive the benefits consistent with your reasonable expectations."

"As is the case with any insurance product," Webb offers in reminder, "you need to review your policies carefully and, before putting down that hard earned premium dollar, have a clear understanding of what benefits are going to be paid in the unfortunate event of a disabling injury or illness."

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