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Employee BenefitsGroup Disability InsuranceHow Long Term Disability Insurance Work in Canada?

How Long Term Disability Insurance Work in Canada?

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Long-term disability insurance (LTD) provides income replacement if you become unable to work due to illness or injury. It is an essential component of financial planning in Canada. We will explain everything you need to know about long term disability insurance.

What is Long Term Disability Insurance?

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Long term disability insurance replaces a portion of your income for disabilities lasting over 1 year

Long term disability insurance replaces a portion of your income if you become disabled and unable to work for an extended period. It provides financial security when you are unable to earn an income.

Group Disability insurance comes in two main types:

  • Short term disability (STD) – Replaces income for disabilities lasting less than one year. Typically pays benefits for 3-6 months.
  • Long term disability (LTD) – For disabilities lasting longer than one year. Pays benefits until recovery or retirement age.

LTD benefits usually start after short-term disability coverage ends. It protects serious and prolonged disabilities.

How Does Long Term Disability Insurance Work?

Long-term disability policies pay a monthly benefit if you meet the plan’s definition of disability. Key features include:

Elimination period – The waiting period before benefits start. Typical periods are 90, 120 or 180 days.

Benefit period – How long can benefits be paid? Most plans pay up to age 65. Some pay for shorter periods, like 2 or 5 years.

Monthly benefit – Income replacement amount. Typically, it is 60-70% of gross monthly earnings.

Definition of disability – Criteria you must meet to qualify for benefits. Most plans require you to be unable to perform the duties of your own occupation. Some require the inability to work at any job.

Partial disability benefits – Some income if you can work part-time or at lower paying job.

Cost of living adjustment (COLA) – Periodic increases to benefit amount to offset inflation.

Survivor benefits – Continued payments to beneficiaries if you pass away while disabled.

Rehabilitation program – Help return to work through training or job modifications.

Why is Long Term Disability Insurance Important?

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Long term disability insurance gives you a cash lifeline so you can focus on getting better, not money stress, if you can’t work.

A disabling illness or injury can wreak havoc on your finances. Long term disability insurance provides critical income replacement if you are unable to work. Here are some key reasons why LTD coverage is so valuable:

  • Replace lost income – Your biggest asset is your ability to earn an income. LTD provides money to pay bills if you cannot work.
  • Maintain standard of living – Disability often leads to reduced income. LTD helps bridge the gap, so your lifestyle is not compromised.
  • Pay for treatment – Medical care, especially for chronic conditions, can be expensive. LTD benefits help cover costs that may not be covered.
  • Protect retirement savings – Disability may prevent savings contributions or force you to dip into retirement funds early. LTD coverage helps prevent this.
  • Support family – Loss of your income can impact the whole family. LTD helps ensure you can still provide for dependents.
  • Pay off debts – Loans and other financial obligations do not go away if you become disabled. LTD provides funds to meet these continued expenses.
  • Peace of mind – The security of income replacement reduces stress, so you can focus on recovery.

Who Needs Long Term Disability Insurance?

Most working Canadians should seriously consider carrying long-term disability coverage. It provides essential income protection few of us could go without.

You are a prime candidate for LTD insurance if:

  • You rely on your income to pay for housing, food, transportation and other necessities.
  • You have little savings to draw from in an extended disability.
  • You have debt obligations like a mortgage, car loan, student loan, or credit card balance.
  • You are the primary breadwinner in your family.
  • You work in an occupation where disability risk is higher.
  • Your employer does not provide LTD insurance.
  • You are self-employed or a business owner.
  • You are close to retirement age and have insufficient savings.

Even if you have employer group LTD, consider getting individual LTD coverage to supplement the work plan. Group LTD often only replaces enough income or provides benefits at retirement age.

How Much Does Long Term Disability Insurance Cost?

The cost of long term disability insurance depends on several factors:

  • Age – Rates increase as you get older due to higher claims risk.
  • Gender – Women often pay more than men on individual policies.
  • Occupation – Riskier occupations have higher premiums.
  • Health – Poor health leads to higher rates or declined coverage.
  • Income – Higher coverage amounts mean higher premiums.
  • Benefit period – Payments to age 65 cost more than short-term plans.
  • Elimination period – Longer waiting periods before benefits have lower premiums.
  • Cost of living adjustment – COLA riders increase costs.

Typical monthly premiums range from 1% to 3% of your gross income. For someone earning $60,000 annually, this equates to $60 to $180 monthly.

The best way to get an accurate rate quote is to use an online quoting tool or speak with an insurance advisor. Be sure to consider both group and individual policy options.

How to Get Long Term Disability Insurance

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Make sure your long term disability insurance has the benefits and coverage period that fit your needs.

There are two main ways to get long-term disability coverage – through your employer or buying an individual policy.

Group Long Term Disability insurance

Many companies offer group LTD insurance to employee benefits as part of their benefits package:

Advantages

  • Inexpensive – Group rates are lower due to risk pooling.
  • Guaranteed issue – No medical questions up to coverage limits.
  • Convenient payroll deduction – Premiums taken directly from paycheck.
  • Portable – This may allow you to keep coverage if you leave an employer.

Disadvantages

  • Limited benefits – May need to replace more income or pay to retirement.
  • Not personalized – Group plan designed for the entire workforce.
  • Not portable – Some plans terminate unless you leave your job.
  • Taxable benefits – Employer-paid premiums mean taxable benefits.

Individual Long Term Disability insurance

You can purchase an individual LTD policy directly from an insurance carrier:

Advantages

  • Customizable – Tailor coverage to your unique needs.
  • Higher benefits – Individual plans may offer up to 80% income replacement.
  • Non-cancellable – Guaranteed renewable to age 65 or longer.
  • Portable – You own the policy if you change jobs.
  • Tax-free benefits – You pay premiums so benefits are not taxed.

Disadvantages

  • More expensive – Higher premiums than comparable group coverage.
  • Medical underwriting – Pre-existing conditions may limit coverage.
  • Age limited – It is more difficult to qualify for coverage after age 50.

For the best protection, consider combining group LTD with an individual policy to maximize benefits.

What Does Long Term Disability Insurance Cover?

Long-term disability policies provide broad coverage for illnesses, injuries and accidents that leave you unable to work. Some specifics of what LTD insures include:

  • Injuries from accidents on and off the job.
  • Illnesses such as cancer, stroke, heart disease, mental disorders.
  • Musculoskeletal conditions like arthritis, fibromyalgia, and back injuries.
  • Neurological diseases including MS, Parkinson’s, and Alzheimer’s.
  • Chronic conditions like diabetes, asthma, and autoimmune disorders.
  • Infectious diseases such as pneumonia, Lyme disease, and HIV/AIDS.
  • Pregnancy and childbirth complications and disabilities.
  • Loss of vision, hearing, speech or use of limbs.
  • Organ failure and transplant complications.

LTD plans pay benefits for total disability – where you cannot perform any job. Some also pay partial disability benefits if you can work part-time or at a lower paying occupation.

What is Not Covered by Long Term Disability Insurance?

While LTD insurance covers a wide range of disabilities, plans contain exclusions. Common limitations and exclusions include:

  • Pre-existing conditions – Illnesses or injuries before coverage may be excluded for 12-24 months.
  • Intentionally self-inflicted injuries – Hurting yourself on purpose will not trigger benefits.
  • Active military service – Disabilities while on active duty are not covered.
  • Commission of a crime – Injuries while committing illegal acts are typically excluded.
  • War or terrorism – Disabilities from acts of war or terrorism may not be covered.
  • Imprisonment – Conditions arising when confined in prison or jail often do not qualify.

Review policy terms closely so you understand exclusions specific to your plan.

How to Apply for Long Term Disability Benefits

If you become disabled and unable to work, follow these steps to apply for LTD benefits:

Notify your employer – Let your manager or HR know you must file a disability claim immediately. There are often notification deadlines in group plans.

  1. Contact the insurance company – Your employer’s benefits administrator can provide details on how to reach the LTD carrier. There may be forms to complete or an 800 number to call to start the process.
  2. Compile medical evidence – The insurance company will require objective proof of disability from your treating physicians. This includes doctors’ notes, test results, diagnoses, treatment plans and any hospital records.
  3. Submit claim forms and proof of loss – You’ll need to complete all necessary claim documents. Be sure to include the medical evidence of disability. Submit claim forms promptly to ensure timely delivery.
  4. Cooperate with requests for information – The insurer may request supplemental details on your condition, treatment, work duties and medical history to evaluate your claim. Respond to all requests quickly and thoroughly.
  5. Attend independent medical evaluations – The insurance company may require you to be examined by a doctor. Make every effort to comply with requests for independent medical evaluations.
  6. Appeal claim denials – If your claim is denied, you can appeal the decision by providing additional medical evidence of disability. Work closely with your doctors to overturn improper denials.
  7. Apply for Social Security disability – If you will be disabled long term, also apply for Social Security disability benefits, which can offset your LTD payments.
  8. Stay in touch with your employer – Maintain regular contact with your manager and HR throughout the claim process so you can return to work when able.

With long-term illnesses or injuries, the LTD claims process can be lengthy. Be prepared for a marathon, not a sprint. Stay persistent, and don’t give up.

How Long Do You Get Paid Long Term Disability Benefits?

The maximum benefit period depends on the terms of your specific LTD policy:

  • 2 years – Some group LTD plans pay benefits for only 24 months. These short-term plans provide limited protection.
  • 5 years – More comprehensive group LTD plans pay benefits for 60 months. This is better but still leaves a coverage gap before retirement.
  • To age 65 – Most individual LTD policies pay benefits until you reach full retirement age (typically 65). This ensures lifetime coverage.
  • To age 67 – With rising retirement ages, some individual LTD plans to extend payments to age 67, which provides 2 additional years of protection.
  • Lifetime benefits – Rarely, some plans continue paying benefits as long as you remain disabled, even past retirement age. This is the ultimate coverage.

Be sure to understand the maximum benefit period in any LTD policy. Look for lifetime coverage to age 65 or 67.

What Happens When Long-Term Disability Benefits End?

As you near the end of your maximum benefit period, you need to plan for transitioning when LTD payments stop:

  • Return to work – If you recover, focus on reentering the workforce in any capacity you can.
  • Apply for Social Security retirement – If you are near retirement age when LTD ends, apply for Social Security retirement benefits.
  • Enroll in CPP/QPP – In Canada, apply for early Canada Pension Plan or Quebec Pension Plan retirement benefits.
  • Draw from retirement savings – You may need to start withdrawals from RRSPs, TFSAs and other savings once LTD benefits cease.
  • Downsize your lifestyle – To reduce expenses, consider moving to a smaller home or taking other steps to cut costs.
  • Discuss extensions with your employer – Some group plans allow limited extensions. Check if this is an option.
  • Convert to individual coverage – You may be able to convert group LTD to an individual policy when leaving your employer.
  • Apply for provincial disability assistance – Those unable to work may qualify for additional benefits through social services.

Losing LTD payments creates financial challenges. Planning and researching all options will help ease the transition.

Can You Get Long Term Disability Insurance After a Claim?

Once you’ve filed a long-term disability claim, your chances of getting coverage again are low. Insurance companies will be very reluctant to take on the risk. However, there are a few scenarios where future LTD coverage may still be possible:

  • If you fully recover and can prove your ability to work, some insurers may offer a policy after a certain exclusion period (e.g. 1 year). You will likely pay higher premiums.
  • If you recovered but transitioned to a new occupation with a lower disability risk, you may be able to qualify for limited LTD benefits.
  • If your disability was caused by a one-time event like an accident unlikely to reoccur, you may have better prospects for new coverage.
  • Some group plans provide access to coverage without medical underwriting, so you may still get group LTD through a new employer.

While challenging, LTD coverage after a claim is not impossible. Be prepared to shop around and consider all options to find a carrier willing to insure you.

Conclusion

Long term disability insurance is a lifeline if disease or injury prevents you from working. It can replace income, pay bills, provide medical care and prevent financial devastation.

Take time to understand policy options, costs and benefits to secure the needed LTD coverage. Combine group benefits at work with individual policies for the best protection.

Disability can strike when least expected. Make sure you are prepared with long term disability insurance so you can focus on healing rather than worrying about finances.

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