Claims Performance and its Impact on Client Relations Definition of Disability Limitations Definition of Income

Definition of Disability When does “own occ” duration begin? CLAIM EXAMPLE: Monthly Pre-disability earnings….…….$4,000 Plan Design…………60% - $5,000/180 Day EP 24 month own occ Assume total disability Carrier B pays $14,400 more total benefit CARRIER A “Own occ” trigger at beginning of elimination period RESULT Own occ duration actually 18 months (24 months - 6 months EP) TOTAL DISABILITY BENEFIT……………..…,,,.$2,400 BENEFIT DURATION…..x18 MO TOTAL LIABILITY……,..$43,200 CARRIER B “Own occ” trigger at end of elimination period RESULT TOTAL DISABILITY BENEFIT…….…...$2,400 BENEFIT DURATION……….…x24 MO TOTAL LIABILITY……………..$57,600

Definition of Disability Is there an “hourly” restriction on how “own occ” is defined? CLAIM EXAMPLE: Monthly Pre-disability earnings….……..…$10,000 Plan Design…..…………60% - $6,000/180 Day EP Total Disability Benefit…………..………….$6,000 Disabled employee/consultant working an avg. of 60hrs/week, billing clients an average 40hrs. Disabling condition is a back problem limiting amount of travel via plane/car resulting in reduced work week CARRIER B No limit on “own occ” RESULT Employee suffers a loss of duties and income (30%) as a result of chronic back condition. INCOME LOSS*………..$3,000 PARTIAL DISABILITY BENEFIT……………..$3,000 BENEFIT DURATION…..x24 PARTIAL BENEFIT LIABILITY**……… $72,000 *Benefits beyond 24 months would be based on 50% earnings offset formula **Benefit ignores affect of indexing CARRIER A Uses 40 hour work week limitation when defining “own occ” definition of disability RESULT No payment because back condition doesn’t preclude employee from performing duties of “own occ” 40 hours/week. Carrier B pays $72,000 more total benefit

Definition of Disability What earnings loss is required? CLAIM EXAMPLE: Monthly Pre-disability earnings….…….$4,000 Plan Design…………60% - $5,000/180 Day EP Post-disability Earnings..……………….$2,800 (30% earnings loss) CARRIER B Requires 20% earnings loss for “Partial” benefit eligibility RESULT Claimant eligible for: *First 24 months of the benefit period the claimant would receive approximately $28,800 ($1,200 x 24 months) *After 24 months benefit would be based on 50% earnings offset formula TOTAL DISABILITY BENEFIT……….$2,400 (60% of $4,000) (-) 50% OF RETURN TO WORK INCOME……....$1,400 (50% of $2,800) (=)PARTIAL DISABILITY BENEFIT………………………...$1,000 TOTAL TAKE HOME POST DISABILITY EARNINGS…$2,800 PARTIAL DISABILITY BENEFIT.$1,000 TOTAL …………………………….$3,800 CARRIER A Requires 40% earnings loss for “Partial” benefit eligibility RESULT No benefit payment until earnings loss equals/exceeds 40% Carrier B pays $1,000 more per month

Definition of Disability What is Partial Disability Income Limit? CLAIM EXAMPLE: Monthly Pre-disability earnings….………...$4,000 Plan Design…………..…60% - $5,000/180 Day EP Total Disability Benefit…....60% - $4,000 = $2,400 Post-Disability Earnings…………………….$2,800 CARRIER B For approved rehab claims, the above example would result in no reduction in benefit for first 24 months of benefit period. There after 50% earnings off- set would apply resulting in $1,000 benefit ($2,400-$1,400) RESULT POST DISABILITY EARNINGS……………………….$2,800 UNREDUCED INSURANCE BENEFIT…………………………$2,400 TOTAL INCOME FROM ALL SOURCES………………………=$5,200 CARRIER A Imposes 70% “All Sources” Income Limit. Benefit reduced when Post-Disability Earnings plus Insurance Benefit exceeds 70% of Pre-Disability Earnings RESULT POST DISABILITY EARNINGS…………… ….$2,800 UNREDUCED INSURANCE BENEFIT…$2,400 TOTAL INCOME FROM ALL SOURCES………….$5,200 80% ALL SOURCES LIMIT-80% OF $4,000….$3,200 TOTAL INCOME EXCEEDS BY…………..$2,000 INSURANCE BENEFIT REDUCED TO………….$ 400 Carrier B pays $2,000 more per month

Definition of Disability How is Partial Disability Defined? CLAIM EXAMPLE: Monthly Pre-disability earnings….………...$4,000 Plan Design…………..…60% - $5,000/180 Day EP Claimant returning to work in “another” job working full time and earning $2,500/month CARRIER B Dual definition of disability…loss of time/duties OR income RESULT During 24 month Work Incentive Benefit Period, carrier pays at least $1500/month ($4,000 - $2,500 post disability earnings) AFTER WORK INCENTIVE BENEFIT PERIOD PAYMENT= TOTAL DISABILITY BENEFIT….$2,400 (-) 50% OF $2,500 …………………$1,250 TOTAL BENEFIT TO AGE 65..…=$1,150 *Example ignores the effect of indexing CARRIER A Requires loss of time/duties AND income RESULT POST DISABILITY No payment because no loss of time/duties in “new” occupation. (May apply only to “any occ’ period.) Carrier B pays $1,150 more per month

Definition of Disability How is “Own Occ” defined? CLAIM EXAMPLE: Company has locations in Seattle & Fairbanks, AK. An employee in Fairbanks goes on disability. Monthly Pre-disability earnings….………...$4,000 Plan Design…………..…60% - $5,000/180 Day EP 24 month own occ plan Total Disability Benefit…....60% - $4,000 = $2,400 CARRIER A Defines “own occ” based on how it is performed in the National Economy. RESULT 1) Employee either takes relocation package moves to an urban area and enters a “rehab” program, or 2) Stays in rural location and receives no benefit CARRIER B Defines “own occ” based on how it is performed in the Local Economy. RESULT No relocation required. Disability benefit is payable based on “dual definition of disability..loss of time/duties or income DISABILITY BENEFIT…….………………...$2,400 DURATION………………x24 months TOTAL LIABILITY………………..…$57,600 Carrier B pays $57,600 more total benefit

Definition of Disability What % earnings offset is used? CLAIM EXAMPLE: Monthly Pre-disability earnings….………...$4,000 Plan Design…………..…60% - $5,000/180 Day EP Post disability earnings…………………….. $2,800 CARRIER A Uses 70% earnings offset after the Return to Work Adjustment period. RESULT Greater reduction in Insurance Benefit due to 70% (rather than 50%) earnings offset TOTAL DISABILITY BENEFIT….$2,400 POST-DISABILITY EARNINGS…$2,800 EARNINGS OFFSE…..……….…… X.70 $1,960 INSURANCE BENEFIT ($2,400 - $1,960) …………………..$440 TOTAL EARNINGS ($2,800 + $440) ………………….$3,240 CARRIER B Uses 50% earnings offset after the Return to Work Adjustment period. RESULT TOTAL DISABILITY BENEFIT……………………..….$2,400 POST-DISABILITY EARNINGS…………………...…$2,800 EARNINGS OFFSET…………... X.50 $1,400 INSURANCE BENEFIT ($2,400 - $1,400) ……………....$1,000 TOTAL EARNINGS ($2,800 + $1,000)………………$3,800 Carrier B pays $560 more per month

Limitations Is “Managed Rehabilitation” a contract requirement? CLAIM EXAMPLE: Monthly Pre-disability earnings….………...$4,000 Plan Design…………..…60% - $5,000/180 Day EP Total Disability Benefit…....60% - $4,000 = $2,400 CARRIER B Does not include a Managed Rehab requirement. Carrier cannot force disabled employee to enter into a recommended rehab program over which they have exclusive control. RESULT DISABILITY BENEFIT…….…...$2,400 DURATION…………………x24 months TOTAL LIABILITY……………..$57,600 CARRIER A Contractually includes a Managed Rehab requirement. Carrier’s claim dept. feels claimant has “functional capacity” to perform material duties with “reasonable continuity.” Claimant disagrees and objects to suggested rehab program. Carrier can retain contractual right to deny claim payment. RESULT NO BENEFIT PAYMENT Carrier B pays $57,600 more total benefit

Limitations Is there an offset with Military Pension or Individual Disability Plans? CLAIM EXAMPLE: Monthly Pre-disability earnings….………...$8,000 Plan Design…………..…60% - $5,000/180 Day EP Individual Monthly Disability………………$3,000 Military Pension Monthly Benefit………….$2,000 Assume Total Disability CARRIER B Does not offset Group Disability Benefit with Individual Disability Benefit or Military Pensions RESULT TOTAL DISABILITY BENEFIT……..$4,800 *Claimant receives full disability benefit ($4,700/month more than Carrier A) CARRIER A Offsets Group Disability Benefit with Individual Disability Benefit or Military Pensions RESULT TOTAL DISABILITY BENEFIT…..………………....$4,800 (-) INDIVIDUAL DISABILITY PLAN…………………………$3,000 (-) MILITARY PENSION……. $2,000 TOTAL BENEFIT…………….$100 Carrier B pays $4,700 more per month

Limitations Does the contract have a “Self Reported Self Diagnosed” symptom limitation? CLAIM EXAMPLE: Monthly Pre-disability earnings….………...$4,000 Plan Design…………..…60% - $5,000/180 Day EP Assume Total Disability, claimant age 52 totally disabled to Age 65 due to Chronic Back Fatigue CARRIER A Includes a Self Reported Symptoms limitation of two years. RESULT Pays total disability benefit for two years TOTAL DISABILITY BENEFIT…..………………....$2,400 DURATION……….………24 months TOTAL LIABILITY…………$57,600 CARRIER B Does not include Self Reported Symptoms limitation of two years RESULT Pays claim to age 65 TOTAL DISABILITY BENEFIT…..………………....$2,400 DURATION………………156 months TOTAL LIABILITY…..……$374,400 Carrier B pays $316,800 more than Carrier A

Limitations Does the contract include “Prudent Person Pre-ex” language? CLAIM EXAMPLE: Coverage Effective date………….January 1, 1999 Monthly Pre-disability earnings….………...$9,000 Plan Design…………..…60% - $5,000/3/12 pre-ex Employee is aware of but doesn’t treat major back problems-December Employee ruptures a disk while skiing February Employee files total disability claim immediately. CARRIER B Does not include “Prudent Person Pre-ex” language RESULT Assuming claimant meets definition of disability: DISABILITY BENEFIT…….…...$5,000 DURATION…………………x24 months TOTAL LIABILITY…..………$120,000 CARRIER A Includes “Prudent Person Pre-ex” language RESULT Claim could be denied due to the fact that any “prudent” person would have received treatment, advice or service due to the back condition. Therefore, this could be considered pre-existing. Carrier B pays $120,000 more total benefit

CLAIM EXAMPLE: Monthly Pre-disability earnings….………...$4,000 Plan Design…………..…60% - $5,000/180 Day EP Reported pre-disability earnings…………...$3,600 Employer fails to report annual salary increases prior to filing of LTD claim Definition of Income Does the contract include clerical misstatement protection? CARRIER B Includes “Clerical Misstatement” protection and doesn’t use “as last reported language in definition of income” RESULT Benefit based on Actual (not reported) income: DISABILITY BENEFIT (60% - $5,000) ……….…….…...$2,400 DURATION…………………x24 months TOTAL LIABILITY…..………..$57,600 *Assuming claims duration of 24 months, Carrier B pays an additional $5,760 CARRIER A Includes “As last reported in writing by employer” language in definition of income. RESULT Benefit based on $3,600 of monthly payroll reported DISABILITY BENEFIT (60% - $3,600) ……….…….…...$2,160 DURATION…………………x24 months TOTAL LIABILITY…..………...$51,840 Carrier B pays $5,760 more total benefit

CLAIM EXAMPLE: Gross Pre-disability earnings….….………...$4,000 Net pre-disability income (assuming $500/month for 401K & Flex)…$3,500 Plan Design…………..…60% - $5,000/180 Day EP Assume Total Disability & 24 month Claim duration Definition of Income Does Definition of Income Exclude 401k/Flex Contributions or 125 Deductions? CARRIER B Bases benefit off of “Gross” Monthly Income RESULT DISABILITY BENEFIT (60% of $4,000) ……….…….…...$2,400 DURATION…………………..x24 months TOTAL LIABILITY…..………….$57,600 CARRIER A Bases benefit on “Net” Monthly Income RESULT DISABILITY BENEFIT (60% of $3,500) ……….…….…...$2,100 DURATION…………………..x24 months TOTAL LIABILITY…..…………$50,400 Carrier B pays an additional $7,200 Based on what earnings level are your clients paying premium?

Questions? Which carrier do you want to pay your disability claims?