Long Term Disability Insurance: FSA Eligibility
What is long term disability insurance?
Long term disability insurance covers the costs of a disability that lasts beyond a certain amount of time, specified in the insurance agreement, and prevents an individual from working or earning income. As with many other types of insurance premiums, the cost of long term disability insurance is not eligible for reimbursement under any form of consumer-directed healthcare account.
Long term disability insurance is purchased through something called an insurance premium. Paying an insurance premium allows an individual to be eligible to receive insurance benefits if certain conditions are met – in this case, if the individual has suffered a disability that lasts beyond a specified amount of time. These amounts can be paid out monthly, quarterly or annually, and their value is heavily contingent on factors including the type of coverage, the likelihood of a claim being made, where the policyholder lives or operates a business, the policyholder's inherent risk of health problems or behavior and competitive pricing with other insurance companies.
In addition to being a source of revenue, premiums are an insurance company's means of covering the many liabilities that come with the plans that they underwrite, as well as investing these amounts for larger returns. However, state insurance regulators work to make sure that companies will have adequate reserves to cover any claims that policyholders may file to ensure that their medical expenses are covered. Last but not least, premiums may fluctuate and increase/decrease after each policy period, which is based on numerous factors, including claims made in the past plan year or cost of coverage increases/reductions (Policygenius).
How are long term disability premiums reimbursed?
For a policyholder to continue to receive coverage through his/her insurance plan, premiums must be paid according to the policy's payment plan schedule, but it is left up the policyholder to decide where these funds should come from. For instance, a flexible spending account (FSA) is only designed to cover medical products and services for an account holder, his/her spouse and dependents. As regulation IRC 213(d)(1) states regarding the FSA account spending: "medical care includes amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body." Long term disability insurance premiums fall outside of this definition and pay for coverage, not direct care.