Denied Disability Claims Cost More Than You Think: Here’s Why

A denied disability or long-term care claim delivers a significant blow, one that goes much deeper than bureaucratic frustration. This isn’t merely about annoying paperwork or a simple “no” from an insurance company; it’s the potential start of a cascade of problems that can unravel your financial stability, your health, and even your relationships.

The core issue isn’t just the benefit payment you expected to receive. It’s about the very real, often unforeseen costs that accumulate because that claim was denied. If an insurance company turned down your Long-Term Disability (LTD) or Long-Term Care (LTC) claim, it may be time to speak with an insurance bad faith lawyer who can help determine whether your denial was unlawful. Grasping the full scope of the consequences is step one. Call Sandstone Law Group at (602) 615-0050 to figure out your options.

The Obvious Hit: Vanishing Income and Uncovered Care Costs

Let’s start with the most immediate blow. If your Long-Term Disability (LTD) claim gets denied, the income replacement you were counting on disappears. Vanished. Just like that. You planned for this safety net, maybe paid premiums for years, anticipating that if illness or injury took you out of work, you’d have support.

Instead, you get a denial letter, and the income stream stops, or worse, never starts. Bills don’t care if you’re sick or injured; the mortgage payment, car loan, utilities – they keep coming. Without that disability income, the math suddenly doesn’t work.

For Long-Term Care (LTC) denials, the hit is different but just as brutal. You or your family member needs daily assistance – maybe in a nursing facility, assisted living, or even at home with skilled care. You bought LTC insurance specifically to cover these potentially massive costs.

A denial means those expenses land squarely back on you. We’re talking thousands, sometimes tens of thousands, of dollars per month. The national median costs for various types of long-term care are significant.

That kind of financial pressure can break even well-prepared families. It forces impossible choices: Do you accept substandard care? Does a family member quit their job to become an unpaid caregiver? The denial doesn’t just withhold funds; it actively creates a financial crisis centered around necessary care.

The Ripple Effect: Draining Your Safety Net Faster Than You Think

That immediate loss of income or the sudden burden of care costs forces desperate measures. The next casualty? Your savings. The emergency fund you diligently built? Gone. The money set aside for retirement in your 401(k) or IRA? You might feel forced to tap into it, incurring penalties and taxes, and sacrificing your future financial security (IRS information on early retirement withdrawals). Selling stocks or other investments at the wrong time can lock in losses.

It doesn’t stop there. People start looking at home equity lines of credit (HELOCs) or even second mortgages. You’re leveraging your largest asset, putting your home at risk, just to stay afloat month-to-month because the insurance payout you were entitled to was denied. Borrowing from family or friends adds another layer of stress and potential strain on relationships.

Think about the long-term damage here. Depleting retirement accounts means you might have to work years longer than planned or face a significantly leaner retirement. Using home equity reduces your financial flexibility and can make it harder to handle future emergencies or opportunities. A denied claim doesn’t just impact your present; it mortgages your future.

Mounting Debt: When Covering Basics Becomes Impossible

When the savings run dry and borrowing options narrow, debt becomes the unwelcome houseguest that refuses to leave. You start relying on credit cards for groceries, gas, utilities – just the basics. The high interest rates on credit cards mean that debt balloons quickly, making it even harder to catch up.

Medical bills pile up relentlessly. Even with health insurance, co-pays, deductibles, and uncovered treatments add up, especially when dealing with a chronic condition or serious injury that led to the disability claim in the first place. If the denial was for LTC, the direct costs of care become overwhelming debt. Prescription costs alone can be staggering. Medical debt is a significant issue for many Americans.

Some people resort to payday loans or other high-interest, short-term borrowing, digging the hole deeper. Eventually, this spiral can lead to collection calls, lawsuits from creditors, wage garnishment, and even bankruptcy. Bankruptcy itself has long-lasting consequences on your credit score, making it difficult to secure loans, rent an apartment, or sometimes even get a job for years to come.

A denied disability claim can push people towards financial ruin, one maxed-out credit card and unpaid bill at a time. For guidance on managing debt, resources like the Federal Trade Commission’s consumer advice can be helpful.

Strained Relationships and Family Burden

The financial pressure and health concerns from a denial inevitably strain personal relationships. Money becomes a constant source of tension, leading to arguments between partners. Feelings of guilt, shame, or being a burden mix with partner exhaustion and resentment from juggling finances, work, and care.

An LTC denial often forces a family member into the primary caregiver role, sacrificing their own career, time, and well-being. While driven by love, this frequently leads to caregiver burnout and stress; thankfully, resources and support networks like the Family Caregiver Alliance exist to help manage these challenges. Children feel the strain too, worrying and potentially altering their own plans due to family finances.

Ultimately, a denial pushes families into unexpected, difficult roles. This added emotional weight frays the very support systems needed most during a health crisis.

The Appeal Labyrinth: Why Fighting Back Is So Complicated (Hello, ERISA)

So, the insurance company sent you a denial letter. You think, “This is wrong, I’ll just appeal.” It sounds straightforward, but it’s usually anything but, especially if your disability or health plan is provided through your employer. Why? Because of a federal law called ERISA – the Employee Retirement Income Security Act of 1974.

ERISA governs most private employer-sponsored benefit plans, including LTD and sometimes health plans that might cover aspects of long-term care. While intended to protect employees, ERISA often creates a system that feels heavily stacked in favor of the insurance company during appeals. You can find general information about your rights under ERISA on the Department of Labor’s website.

Here’s a taste of what makes ERISA appeals tricky:

Strict Deadlines for Denied Disability Claims Appeals

You usually have only 180 days to file your appeal after receiving the denial. Miss that deadline, and you generally lose your right to challenge the decision forever.

Building the Administrative Record for Denied Disability Claims

This is key. In most ERISA cases, the only evidence a court can look at later (if you have to sue) is the information submitted during the internal appeal process. You can’t just show up in court with new medical reports or witness statements. Your appeal needs to be incredibly thorough, containing all medical evidence, opinions from your doctors, vocational reports, personal statements – everything supporting your claim. If it’s not in the administrative record submitted during the appeal, it basically doesn’t exist legally.

Limited Discovery Under ERISA

Unlike typical lawsuits, you usually can’t force the insurance company to turn over lots of internal documents or depose their employees in an ERISA case. You work primarily with the claim file they provide.

High Standard of Review: Why Winning Is Tough

In many ERISA cases, courts give deference to the insurance company’s decision, meaning they’ll only overturn the denial if it was “arbitrary and capricious” – a high bar to clear. They don’t decide if you are disabled, but whether the insurer had some reasonable basis for denying you, even if the court might have decided differently.

No Jury Trials, No Punitive Damages

ERISA cases are typically decided by a judge, not a jury. And generally, you can only recover the benefits owed plus potentially attorney fees – you usually can’t get punitive damages for bad faith or emotional distress like you might in other insurance disputes.

The specific procedures for appeals are outlined in ERISA regulations. If you need to file a lawsuit after exhausting the appeal process, that falls under the civil enforcement section of ERISA.

Navigating this requires careful attention to detail, understanding complex procedural rules, and building a comprehensive evidence file before the appeal deadline. A misstep here isn’t just a setback; it can permanently derail your claim.

Private individual disability policies (not through an employer) generally fall under state insurance laws, which can offer different protections and procedures, but the appeal process still demands careful handling.

Important Note for Individual Policyholders: If you purchased your disability or long-term care (LTC) policy directly (not through an employer, union, or group plan), state insurance laws—not ERISA—govern your policy. Key differences include:

Bad faith claims are not universally available; they depend on your state’s insurance laws. For example, states like California and Arizona recognize bad faith claims against insurers, while others have stricter standards. Always consult an attorney to determine your specific rights under state law.

What Now? Steps After the Disability Claim Denial Hits

The denial letter arrived. Panic might be your first reaction, but action is required. Sitting on it won’t help.

1. Read the Disability Claim Denial Letter Carefully

Don’t just skim it. The letter must explain the specific reasons for the denial and reference the policy provisions they relied on. It must also clearly state the deadline for filing an appeal (usually 180 days for ERISA plans). Understand why they denied you – was it lack of medical evidence? A finding that you can do some other job? A pre-existing condition exclusion? Their reasoning dictates your appeal strategy.

2. Request Your Entire Claim File

Immediately contact the insurance company (in writing is best) and request a complete copy of your claim file. Under ERISA, they are required to provide this upon request. This file contains all the documents they reviewed – medical records, consultant reports, internal notes, correspondence. You need to see what they saw (and maybe what they ignored).

3. Gather Your Evidence

Start collecting everything related to your condition and inability to work (for LTD) or need for care (for LTC). This includes:

• All relevant medical records from all treating physicians, therapists, hospitals, etc. Make sure they are complete and up-to-date. Understand your rights to access your medical records under HIPAA (HHS.gov on Health Information Privacy).
• Detailed statements from your doctors explaining your diagnosis, prognosis, specific functional limitations, and why you meet the policy’s definition of disability or need for long-term care. These should directly address the reasons for denial if possible.
• Information about your job duties (for LTD) if the denial questioned your inability to perform them.
• Personal statements from you, family members, or friends describing your daily struggles and limitations.

4. Calendar the Appeal Deadline

Mark it everywhere. Missing this deadline is usually fatal to your claim under ERISA.

5. Consider Legal Help from a Disability Claim Attorney

Given the complexities, especially with ERISA, getting advice from attorneys who handle these specific types of insurance denials is often a smart move. They understand the rules, know how to build a strong administrative record, and can counter the insurance company’s arguments effectively. An initial consultation can help you understand your rights and the strength of your case.

Taking these steps puts you back in a position of action, rather than reaction, after receiving a denial.

Take Back Control from the Insurance Company

A denied disability or long-term care claim feels like the floor dropping out from under you. It’s not just about a check; it’s about your stability, your health, your future. The costs go far beyond the dollar amount on the denial letter, eating away at savings, health, and peace of mind. Don’t let an insurance company’s “no” be the final word on your security. You have the right to fight back.

You’ve faced enough challenges dealing with your health condition. Let Sandstone Law Group handle the fight against the insurance company. Call us today at (602) 615-0050.