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Long Term vs Short Term Disability Insurance in a Group Plan: Which Should You Choose?

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Group disability insurance provides vital income protection if you cannot work due to illness or injury. With disability insurance, a portion of your income will continue while you recover and get back on your feet. For Canadians enrolled in an employee group benefits plan, there are typically two main options for disability coverage: long term disability insurance (LTD) and short term disability insurance (STD). But what exactly is the difference between long-term and short-term disability insurance? When might one be better than the other?

In this guide, we will compare long term vs short term disability insurance so you can make an informed decision about the right coverage for your needs and budget. We will outline the key differences in waiting periods, benefit durations, income replacement percentages, costs, etc. We’ll also discuss strategies for coordinating short and long term disability, look at definitions of disability, and help you understand the details of how group disability benefits work. Read on for a detailed side-by-side comparison and our recommendation on whether you need both short term and long term disability insurance.

What is Disability Insurance in a Group Plan?

What is Disability Insurance in a Group Plan? ebs
What is Disability Insurance in a Group Plan?

Disability insurance provides partial income replacement if injury, illness, or disability prevents you from working and earning your regular paycheck. It can help you continue paying everyday living expenses like rent, utilities, and groceries while you recover.

Group disability insurance is offered by employers as part of an employee benefits package. It provides affordable disability protection by spreading the risk over a group of employees. Over 10 million Canadians have long term disability coverage through their employer.

Source: https://www.clhia.ca/web/CLHIA_LP4W_LND_Webstation.nsf/resources/Consumer+Brochures/$file/Brochure_Guide_to_Disability_ENG.pdf

The premiums are typically deducted from paychecks as part of the payroll process. Benefits are usually taxable since the employer paid for the coverage. The monthly benefit amount aims to replace 60-70% of gross monthly earnings, up to a maximum dollar limit.

Source: https://www.canada.ca/en/financial-consumer-agency/services/insurance/disability.html

Critical Differences Between Long Term and Short Term Disability Insurance

While both offer income protection in the event of disability, long term and short term group disability insurance have some crucial differences:

Waiting Periods

The waiting period, also called the elimination period, is the time between becoming disabled and start of benefits. Short term disability plans have shorter waiting periods before benefits start flowing. Typical STD waiting periods are:

– 0 days for injuries

– 7 days for illness

– 14 days for illness

Long term disability plans have longer waiting periods, such as:

– 90 days

– 120 days

– 180 days

The duration of the waiting period affects the premium cost, with more extended periods decreasing the cost.

Source: https://briansoinsurance.com/short-term-vs-long-term-disability-insurance/

Benefit Payment Duration

As the names imply, short term disability provides benefits for a shorter maximum time period while long term disability will pay benefits for a longer term if still disabled.

Typical maximum benefit durations are:

– Short term disability: up to 30 weeks

– Long term disability: 2 years to age 65

Some long term disability plans pay lifetime benefits if still disabled.

Source: https://www.ltdlawyerontario.com/blog/short-term-disability-and-long-term-disability-benefits-for-canada-post-employees/

Income Replacement Percentage

Both STD and LTD aim to replace a portion of your gross monthly earnings. A typical income replacement percentage is 66.7% or 60-70% of monthly pre-disability earnings.

As a result, higher-income earners may receive less than 60-70% income replacement.

Taxability of Benefits

If the employer pays all or part of the premiums, the disability benefits are taxable income. If employees pay the entire premium, benefits are tax-free.

Cost of Coverage

Short term disability is typically less expensive than long term. Costs vary by factors like:

– Age

– Gender

– Occupation

– Marital status

– Waiting period

– Benefit amount

Higher benefit amounts raise costs, as well as hazardous occupations or medical history.

When is Short Term Disability Insurance Better?

When is Short Term Disability Insurance Better? ebs
When is Short Term Disability Insurance Better?

There are a few situations where short term disability coverage may be a better option:

You Expect a Short-Term Disability

For temporary disabilities from injuries or short illnesses, short term disability provides adequate coverage. The benefits start soon after becoming disabled and provide income for a few months as you recover.

Bridging Sick Pay and Long Term Disability

Some employers provide sick pay for the first 1-2 weeks of disability. Short term disability starts after sick pay ends and provides income until long term benefits kick in. This prevents a gap in coverage.

Budget is Tight

Premiums for short term disability insurance are about 50% lower than long term on average. If finances are tight, essential STD protection may be affordable when LTD is not.

Overall, short term disability insurance offers affordable essential income protection for short term needs. It provides peace of mind knowing bills could be paid for a few months if sick or injured.

When is Long Term Disability Insurance Better?

While short term disability fills a role, long term disability insurance has unique benefits:

Longer Disabilities

The risk of being disabled for many months or years is real. One in three Canadians will be disabled for over three months before age 65. Long term disability insurance replaces income for an extended period.

Greater Income Replacement

With a higher monthly benefit maximum than STD plans, long term disability aims to replace a more significant percentage of income for high earners. This prevents severe lifestyle cutbacks.

Protecting Retirement Savings

A long term illness can ravage retirement savings prematurely. Long term disability coverage helps prevent dipping into your RRSP or other savings while unable to work.

Overall, long term disability insurance provides more comprehensive protection and income replacement if seriously ill or injured for longer periods. It prevents financial devastation from an extended disability.

Should You Have Both Kinds of Coverage?

Should You Have Both Long term and Short term Coverage? ebs
Should You Have Both Long term and Short term Coverage?

Ideally, having both short term and long term disability insurance provides the most complete coverage. But does dual coverage make sense for everyone? Here are some pros and cons to weigh.

The Pros of Having Both Short Term and Long Term Disability Insurance

– Short term fills the waiting period gap before long term benefits begin

– STD offers essential income protection if never need to claim LTD

– Continued income while assessing if long term claim will be approved

– Higher total monthly benefit when both STD and LTD claims are active

– Added financial security for families relying on income

The Cons of Having Both Short and Long Term Disability Insurance

– Paying dual premiums raises the cost of coverage

– Overlapping coverage for the same purpose

– Claims coordination gets complex between the two plans

– Still have gaps in sick leave and waiting periods

Weigh the added costs against the benefit of seamless income protection. For many professionals, paying for both short term and long term disability provides invaluable peace of mind.

Strategies for Coordinating Short Term and Long Term Benefits

If your group plan offers both short term and long term disability insurance, it’s essential to understand how they coordinate. Here are some strategies for aligning your STD and LTD coverage:

– Choose the same waiting period for both policies where possible. This minimizes gaps between benefit expirations and commencements.

– Understand the claims process for transitioning from short term to long term benefits within the same insurance company. Get paperwork in order to continue seamless payments.

– Be aware of the maximum total benefits under the STD and LTD plans combined. They may cap total payouts.

– Consider increasing the STD benefit amount to raise the income replacement level. A higher STD payout can supplement the LTD benefit.

– Review offset clauses so disability payments from other sources don’t lead to reduced benefits.

With brilliant coordination between short term and long term policies, you can receive optimal disability benefits.

Understanding the Details of Your Group Disability Plan in Canada

The details and definitions included in your employee benefits handbook are crucial in determining how your disability claim may be handled. Essential items to review are:

Definition of Disability

Most plans have separate definitions for short term and long term disability. Short term may define disability as inability to perform your own occupation. Long term may require inability to perform any occupation. Know the exact definitions that would apply.

Income Offsets

Other income sources like CPP disability benefits, auto insurance payments, or workers’ compensation may offset or reduce the amount of disability insurance. Check whether there are offsets that could impact your benefit amount.

Pre-Existing Condition Clauses

A pre-existing condition exclusion may apply for some period of time. This means a disability related to a pre-existing health issue prior to coverage would not be eligible for benefits.

Premium Payments When Disabled

Find out if disability premiums are waived while receiving disability payments. This prevents policies from lapsing while they are unable to work and without income.


Understand whether your disability benefits will be taxed as income. This depends on whether you or your employer pays the premiums.

By studying your plan details carefully, you can ensure there will be no surprises when it comes time to file a claim. Being informed of the definitions and conditions gives you confidence in your disability protection.

Applying for Coverage and Making a Claim

The processes for enrolling in group disability insurance and filing a disability claim are relatively straightforward. But knowing what to expect can make it easier to get approved.

Applying for Group Disability Insurance Coverage

Employees are typically auto-enrolled in group disability coverage when they become eligible. For example, your benefits may start after a 3-month probation period with a new employer. The premiums are deducted from your paycheck.

For optional supplemental coverage, you may need to complete a health questionnaire if applying outside the initial enrollment window. Those with significant pre-existing conditions may be denied the additional coverage.

Filing a Disability Insurance Claim

When you become disabled, notify your employer and benefits administrator promptly before the waiting period ends. Obtain the required claim forms for both short term and long term disability depending on which benefits you need to access. Work with your physician and healthcare team to provide medical evidence of your disability.

Insurance company case managers will review the claim to validate the disability, confirm income documentation, and coordinate payments. Provide any additional details as requested. Reimbursements or direct deposits will begin once approved. Ongoing proof of disability may be required periodically.

If your benefits are denied or terminated despite your continued disability, you can file an appeal with evidence to be reassessed. Be sure to meet all claim appeal deadlines specified.

Disability Insurance Beyond the Group Plan

While your employee benefits provide base disability coverage, you may need to supplement it with other types of plans. Reasons to consider additional disability protection include:

– Group plan monthly maximums below your income needs

– Want benefits to age 65 instead of 2 years

– Need more comprehensive individual definitions of disability

– Desire higher income replacement percentage

Types of supplemental disability income protection include:

– Individual disability insurance plans

– Disability insurance for self-employed

– Association group disability coverage

– Credit insurance with disability benefits

– Critical illness insurance

– Long term care insurance

Other public sources of disability income include Social Security Disability, Workers’ Compensation, Veterans Disability benefits, and Canada or Quebec Pension Plan disability pensions.

A complete disability insurance portfolio combines group coverage with individual policies and government programs tailored to your profession and income requirements. Work with an advisor to identify potential gaps.

Conclusion and Summary

With an informed understanding of your group disability insurance coverage, you can have confidence your income is protected if the unpredictable occurs. ebs
With an informed understanding of your group disability insurance coverage, you can have confidence your income is protected if the unpredictable occurs.

Disability insurance can prevent financial catastrophe if injury or illness stops your income flow. Both short term and long term group disability plans have essential roles in providing income continuity.

Short term disability offers fast benefits for temporary illnesses and injuries. It is affordable basic coverage to tide you over for weeks or months.

Long term disability protects your finances for extended disabilities into the future. It aims to replace more lost income long-term.

Ideally, a combination of both short term and long term group disability insurance provides comprehensive protection. Understand how coverage coordinates between the policies.

No matter which types of disability insurance your employee benefits provide, read the details carefully. Check waiting periods, definitions of disability, maximums, offsets, pre-existing condition limits, taxability, and premium waivers.

With an informed understanding of your group disability insurance coverage, you can have confidence your income is protected if the unpredictable occurs.

FAQs about Long Term vs Short Term Disability Insurance in a Group Plan

What is the difference between long term and short term disability insurance?

The main differences are the waiting period before benefits start, the maximum benefit duration, and the monthly benefit amount. Short term disability (STD) has a shorter waiting period of 0-14 days and pays benefits for up to 6 months. Long term disability (LTD) has a more extended waiting period of 30-180 days and pays benefits for two years up to retirement age. STD also tends to have lower maximum monthly benefits than LTD.

When would I choose short term disability insurance?

Short term disability is suitable for short illnesses or injuries where you expect to recover within weeks or months. It provides essential income protection for temporary disabilities. STD is also cheaper than LTD.

When would long term disability insurance be the better option?

If your disability could potentially last for years, long term disability provides more comprehensive coverage and higher income replacement. LTD protects you if you suffer a severe or permanent disability. It prevents financial devastation from an indefinite inability to work.

Should I have both short term and long term disability insurance?

Having both STD and LTD can provide the most complete coverage in case of any length of disability. Short term fills the gap between when disability starts and long term benefits kick in. The combined benefits provide higher monthly income than having just one type.

How do short term and long term disability benefits coordinate?

The best strategy is choosing the same waiting period for both policies where possible. This prevents gaps between when STD stops paying and when LTD starts. Make sure you understand the transition rules between the two policies within the same insurance company.

Are disability benefits taxable?

Disability benefits are taxable if your employer pays all or part of the premiums. If you pay 100% of the premiums yourself, the benefits are tax-free income.

How do I file a disability claim?

Notify your employer and benefits administrator as soon as you become disabled before the waiting period ends. Obtain the claim forms and work with your doctor to provide medical evidence. The insurance company will request details to validate your disability and coordinate benefit payments.

Article Sources

Ebsource empowers informed benefits choices. Our impartial insights come from financial experts following industry best practices. We source accurate data from reputable agencies like Statistics Canada. Through rigorous research of major providers, we provide tailored recommendations based on individual needs and budgets. At Ebsource, we uphold strict editorial standards and transparent sourcing. Our goal is equipping Canadians with trusted knowledge to confidently select optimal benefits. We aim to be Canada’s most reliable resource for savvy benefits guidance.

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