Group Disability Insurance in Canada
What is Group Disability Insurance?
Group disability insurance replaces a portion of an employee’s income if they cannot work due to disability. It provides monthly payments to supplement lost wages so employees can continue paying bills and living expenses.
Group disability insurance is offered through an employer. It covers all eligible employees under one group policy. Premiums are often paid entirely by the employer or shared between employer and employees.
What types of Group Disability Insurance in Canada ?
There are 5 main types of group disability coverage:
Short-Term Disability (STD) Insurance
- Provides income replacement for up to 15-26 weeks
- Benefits start after 0-14 day elimination period
- Replaces 55-80% of weekly earnings
- Covers disabilities preventing you from performing your own occupation
Read more : Short-Term Disability Insurance in Canada
Long-Term Disability (LTD) Insurance
- Provides longer-term income replacement (up to age 65)
- Benefits start after 119 day elimination period
- Replaces 50-70% of monthly earnings
- Two main definitions: Own Occupation and Any Occupation
Read more : Long-Term Disability insurance in Canada
Attention : STD coverage helps replace wages during short-term health problems. LTD protects income in case of permanent or long-term disability. Many employers offer both STD and LTD plans.
Business Overhead Expense (BOE) Insurance
- For self-employed and business owners
- Reimburses fixed business expenses during disability
Key Person Disability Insurance
- Covers financial loss when key employee benefits become disabled
- Provides funds to replace contribution of disabled person
Buy-Sell Disability Insurance
- Funds buyout of disabled partner’s or shareholder’s ownership interest
- Allows remaining owners to gain control and continue business
The majority of employers offer basic STD and LTD coverage. Additional buy-up disability options may include BOE, Key Person, and Buy-Sell.
How Does Group Disability Insurance Work?
Group disability insurance provides partial income replacement if an illness or injury prevents you from working. Here’s an overview of how it works in Canada:
Eligibility
Most group disability plans cover full-time employees working 30+ hours per week. Coverage may extend to part-time staff as well. New employees often become eligible after a waiting period.
Benefits Amount
Disability payments typically replace 50-80% of your pre-disability earnings. Benefits are subject to a monthly maximum amount, such as $6,000. The maximum aims to replace 85% of income for low-wage earners and 60% for high earners.
Benefits Duration
STD benefits are payable for up to 6 months. LTD coverage continues paying benefits until age 65 in most plans. Some LTD plans pay benefits for a shorter duration, such as two years.
Elimination Period
It would help if you could not work due to disability for an “elimination period” before benefits begin. STD plans often have 0-14 day elimination periods. LTD elimination periods range from 60 to 180 days.
Definition of Disability
Group policies define disability as inability to perform your regular or any occupation. More lenient definitions make it easier to qualify for benefits.
Premiums
Premiums are paid by the employer, employees, or shared. Premiums are based on factors like plan design, employee demographics, and industry risks. Healthier employee pools generally have lower rates.
Taxes
Disability benefits are taxable income if premiums were paid by the employer or shared. Benefits aren’t taxed if employees pay 100% of premiums.
Key Provisions in Group Disability Policies
Canadian group disability policies contain many important provisions that determine coverage:
Covered Causes
Most plans cover disabilities caused by accidents, injuries, or sickness, including physical and mental conditions.
Partial Disability Benefits
Allow you to work part-time while recovering and receive proportional benefits based on loss of income or duties.
Vocational Rehabilitation
Some LTD carriers provide job retraining services to help you return to alternate employment.
Waiver of Premium
Once disability benefits begin, you stop paying premiums for coverage.
Pre-Existing Conditions
Most plans limit or exclude coverage for medical conditions treated during the months before enrollment.
Survivor Benefits
Some plans continue paying benefits to dependents for a period if you pass away while disabled.
Is Group Disability Insurance Taxable?
The tax rules for disability benefits depend on who pays the policy premiums:
- Employer-paid – Benefits are taxed as regular income
- Employee-paid – Benefits are not taxed
- Shared premiums – Benefits are partly taxed proportional to employer contributions
If your employer pays 100% of premiums, your benefits will be taxable income. Benefits remain tax-free if you pay 100% of premiums from your after-tax dollars.
How Much Does Group Disability Insurance Cost?
Monthly disability premiums typically range from $20-100+ per employee depending on factors like:
- Benefit amount and duration
- Definition of disability
- Industry risks and employee demographics
- Employer size (larger groups get lower rates)
Employers usually pay the full premiums or share the cost with employees. Premiums are tax-deductible business expenses for employers.
Should Employees Get Individual Disability Insurance Too?
Some experts recommend employees supplement group LTD coverage with individual disability policies. Individual disability insurance offers these advantages:
- Ability to customize coverage
- Portable between employers
- Benefits not subject to income tax
- Can exceed group maximums
The downsides are higher premiums and the need to qualify medically. Employees with chronic conditions may not be approved.
When it comes to your financial security, it’s wise to listen to the experts. That’s why many financial advisors strongly recommend securing your own portable LTD policy and maintaining both group and individual disability insurance.
Conclusion
Group disability insurance provides vital income protection for Canadian employees if injury or illness prevents them from working. It ensures you can pay bills while recovering and focus on getting healthy.
While government disability aid exists, it is limited. Group LTD and STD plans offered through employers are essential coverage for most working Canadians to maintain their standard of living when faced with a disability.
Who is eligible for group disability insurance?
Most plans cover full-time employees working 30+ hours weekly. Coverage may extend to part-time employees as well after a waiting period.
What's the difference between short-term and long-term disability?
Short-term disability (STD) replaces 55-80% of income for up to 15-26 weeks. Long-term disability (LTD) replaces 50-70% of income for 2+ years up until age 65.
How are group disability benefits taxed?
If the employer pays 100% of premiums, benefits are taxable income. If employees pay 100% of premiums, benefits are not taxed. With shared premiums, benefits are partly taxed based on the employer's percentage of contributions.
Can I receive disability benefits while working part-time?
Many group LTD plans offer partial disability benefits that allow you to work part-time while recovering and receive proportional benefit payments based on loss of income or duties.
How do pre-existing conditions affect group disability coverage?
Most group plans limit coverage for pre-existing conditions treated in the months prior to enrollment through clauses like 3-month lookback periods and 12-month exclusion periods.
What common limitations or exclusions apply to group disability benefits?
Common exclusions include self-inflicted injuries, participation in criminal acts, acts of war, and disabilities during incarceration. Benefits may also be limited or terminated if you recover or decline vocational rehabilitation.
