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Self Insured Company Disability Plans

As part of the Nortel Bankruptcy, one of the biggest victims were employees who were on disability. The disability insurance ended up in a mess, and those on disability lost their benefits. I knew a few folks who were directly impacted by this, and it makes me very upset thinking of them. Could this happen again? You’d hope not, but nothing much has changed.

More Insurance that Doesn’t Quite Insure

Behold the plight of the 400+ Nortel employees (Canadian) who have been living on disability insurance. They will be cut off from their benefits. This has come to light in the media finally. Nortel officially disappeared a while ago.

How can this be, you ask? Nortel and other large companies typically self insure these kind of plans. This means though it looks like you have your insurance with a large insurance company, you don’t. Your policy is held by your employer and is paid out by your employer (when you make a claim). To the large company it is much cheaper to have the insurance company simply administer the Insurance Policies. The money comes from the large company directly (rather than simply paying premiums to the insurance company and have them profit from the programs).

So what is the problem? The obvious issue with Nortel, is that the company does not exist any more. Anyone who is owed money through this kind of disability policy is now only an unsecured creditor, and is likely to get very little (if any) more money. The fact that this debt can be dodged by the firm by simply declaring bankruptcy is bad (in my opinion).

So what can be done? For the folks at Nortel, not much more. They have hammered out a deal to get whatever moneys they can. As of the cut off date, however, they will be without income, leaving them few options to live on. They may have access to the Canada pension plan disability, but not much else. For those that have disability insurance with large firms that are currently self-insuring, they should be contacting their MP’s right away to have put in place some kind of protection system for this kind of insurance policy.

Former Legislation

There are two pieces of legislation on the books about this topic:

  • Bill S-216 An Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement to protect beneficiaries of long term disability benefits plans (authored by Senator Art Eggleton)
  • C-476 An Act to amend the Bankruptcy and Insolvency Act and other Acts (unfunded Pension Plan Liabilities) (author Wayne Marston (Hamilton-East-Stoney Creek))

Talk to your MP and MPP about these two acts and why they died.

Pension reform is needed as well, but these “policies” being held on the companies books as debt liabilities and not like a pension (which is held by an Arms length company, that is funded by the Insuror), puts 1.1 Million people at risk currently (according to the Canadian Life and Health Insurance Association (from the CBC post Disabilty Insurance at risk for 1.1 Million)).

If you are in this kind of disability insurance program, you may be at risk and it would be in your best interest to follow up on this issue.

What really upsets me, is I paid for this insurance when I worked at Nortel, and it was a very expensive premium that was paid for peace of mind, yet the money effectively went into the companies coffers, instead of a safe place in case I needed it?

The worst part of this whole story, is I know people directly effected by this cut off, and they are the ones who need help. We shall see how this shakes out, but if anyone knows more about this, please feel free to comment.

Addendum

I am most likely in the same situation now. I am a Civil Servant and my guess is that the Government self-insures. This couldn’t happen again, could it? Remember Nortel was too big to fail. The government couldn’t declare bankruptcy, could it?

Other Nortel Disability Stories

From the archives 2010

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Disability Insurance vs. Critical Illness Insurance

I really didn’t understand the difference between these two different types of insurance policies. Luckily I have smart friends who answer my dumb question. What is the difference between Critical Illness Insurance and Disability Insurance?.

Chantal Marr answered my query (she is part of LSM insurance one of my advertisers, and she is also my insurance consultant for this blog as well), and I think I now understand the big difference between these two policies.

What is the Difference ?

Critical Illness Insurance

Critical Illness Big Winner! (really?)

Chantal’s answer is concise and easily understood:

Disability Insurance pays out a monthly benefit that is tied to your ability to earn an income.  Critical Illness pays out a lump sum benefit but is is not tied to your ability to earn an income.  Disability Insurance underwrites your occupation and Critical Illness does not.

Chantal has also written a more detailed description and discussion of these insurance vehicles with: Critical Illness insurance vs. Disability Insurance Why You Need Both.

Both Critical Illness Insurance and Disability Insurance?

I do not agree that you need both insurances, I think Critical Illness insurance strikes me as a bit ghoulish, in that you get a big pay out for getting a critical illness. Do you need a large lump sum payment if you are diagnosed with a critical illness? I am not sure, I would have thought that if you have a good health insurance plan, and you have some kind of disability insurance, that would be nearly enough, but I am sure Insurance folks would argue you need the critical illness to be completely covered (again, I don’t agree with that).

As for the Disability Insurance, read over your policy carefully if you are purchasing one to ensure you understand how “Disabled” is defined, and how you qualify (or don’t qualify) for funds (but you should do that with all Insurance policies). Understanding what Disabled means, is the key to the policy, as what you think of as disabled and what your insurer thinks of as disabled may not be the same thing.

Is There Another Part ?

The other part of any Disability Insurance Policy is figure out who is insuring you. I have written previously about Self Insured Disability Insurance that decimated many families during the Nortel fiasco. Make sure that whoever is insuring you, is financially sound.

Image courtesy of Ambro/ FreeDigitalPhotos.net

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The $6 Million Man?


Our friends over at PBS News Hour (the best news program out there (sorry Daily Show)), had a very off topic but interesting piece on the work towards bionic body part replacement that is going on in the medical world. This topic is dear to my heart because of my late Dad and other folks in my family dealing with disabilities and me constantly wondering, isn’t there some way to help them with these disabilities.

Are we heading towards the $6 Million Man? No, not yet, but with more understanding of how the brain actually works, and our ability to hook into the outputs from the brain, and finally our ability to understand the mechanisms of our body (let me tell you a knee is a complicated little system), and recreate that system synthetically.

Some of this is science fiction, but then again, without the ideas of science fiction, will we move forward? The other issue (which does have something to do with money) is who is going to fund this work? How will this all fit into the already crippling health costs out there? Another interesting question to answer.

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What is Your Financial Plan B ?

My kids being rather sporty has allowed me to be exposed to some very elite athletes who are very talented and their talent makes you sure they will go far in this sport, however, what happens if something goes very wrong? What is your financial plan b ?

This past weekend a very talented player on one of my daughter’s rugby team damaged her ACL. After dealing with one of my other daughter having her ACL broken, I know that this is a devastating injury, with a long recovery time (and some long-lasting issues as well). This player was going to play for a University team and was an elite level player, but now what?

This same kind of tragic accident/incident can happen in anyone’s life. What is your financial plan B? Plan B, typically is the name given to the steps you must take if your initial plan fails, or is in someway derailed, and everyone should at least have a generic Plan B for their finances to deal with a catastrophic failure of some kind?

financial plan b
The Ultimate Financial Plan B

Catastrophic Financial Failures

  • Sudden death of the main family bread-winner is the easiest financial catastrophe that everyone should have a plan in place (i.e. Life Insurance and/or a Will). Yes that is a simple example, but you’d be surprised how few folks don’t even think about that one.
  • Loss of job of major bread-winner (or possibly even both): This one I have lived through, and I thought I had a plan, but believe me, it was not in enough detail, and the more you plan, or think about this, the less gut wrenching it can be if it happens to you (or your spouse). I assumed I was going to get a “settlement” for getting laid off. Luckily I did, but folks who got hit a month after I did, ended up with nothing. Those folks really were in deep trouble, can you deal with that kind of a disaster?
  • Economic disaster (read 2008), where stock values and fortunes can decrease (if not disappear) over night, can you deal with a sudden portfolio drop? Are you close enough to when you might need those funds that you should maybe take your profits now?
  • Health failure, not death, but the major breadwinner is unable to work, how will that work? Do you need disability insurance, or do you create a “nest egg” or “disaster fund”? Can you deal with this?
  • A pandemic that shuts down the global economy? Nah, that would never happen.

What does your Financial Plan B look like? Have you had to use your Plan B?

Other Plan B Stories


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Long Term Disability Insurance

Nortel screwed over their employees who had Long Term Disabilities, because Nortel was self-insuring. No one came to their rescue either, their long term disability insurance did not help. Other companies self-insure, so you need to be careful with your LTD insurance

I have written before about the plight of the folks who were in the Nortel Disability plan (and are now in a bad predicament), but they lost one of their most active advocates in Peter Burns over the weekend. Peter attempted to put a face to the folks effected by the Nortel Disability debacle (because Nortel was self-insured, the disability insurance pay outs became simply another group of creditors).

My connection to this story is that I used this insurance, assuming I was protecting my family, when I worked at Nortel. I was lucky that I never had to test the insurance’s usefulness. I am aware of former co-workers who are now in a much worse financial place because of the January deadline which cut off these folks from the benefits they thought they were purchasing.

Given there are a lot of folks who do worry about the future and attempt to protect their families with disability insurance, they need to find out how this disability insurance actually works. If it is with your employer and they self-insure, you can easily end up in the same predicament as the former Nortel employees.

The insurance looked like it was being run by SUN Life, but in fact they were simply administrators, and it was Nortel who was paying the bills (which was cheaper for Nortel at the time), but now with Nortel being a bankrupt husk of itself, now things are very different. The disability payments got thrown in with the hundreds of millions owed to vendors, customers and partners, and thus were not going to get paid much at all. As of January the pay outs have stopped and now these folks are living on whatever disability income they can get from the Government.

Conclusions

A good example of doing the right thing and still ending up in a bad place. It is important to understand who underwrites your disability insurance. If it is your firm, this is a big issue.

Other views on this subject.

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