Long term disability insurance is often offered by employers as a benefit to retain, engage and support their employees. Therefore, LTD insurance is a contract between the insurance company and the employer. Although every policy is different, there are several factors which are somewhat similar. We’ll go over a few areas to help you better understand how the long-term disability process works.
The LTD contract will clearly state how long the insured must be off work before the LTD benefit can start. This is often referred to as the “elimination period”. In some cases, long term disability benefits can only be considered after the employee has exhausted their sick days and short-term disability benefits.
Previous Occupation Period
Long term disability policies have a component known as previous occupation’’ or “any occupation’’ period. For your insurer to give you LTD benefits, they have assessed your ability to perform your previous occupation. However, another assessment will be conducted, usually after 2 years of receiving LTD benefits. This assessment is a thorough medical check to find out if you can perform any occupation because, at this time, the definition of disability has changed.
Once your long-term disability claim is approved, you will receive a payment amount which is usually a percentage of your pre-disability income. The exact amount will depend on what was stated in your policy. Sometimes, you can offer to pay higher premiums as an employee in order to get a higher payment amount. The payment amount can be as low as 30% or as high as 100% of your pre-disability income.
If you receive any money from another source such as workers’ compensation benefits or Canada Pension Plan, it is going to be deducted from your LTD benefits. This will be clearly stated in your contract. You may also have to apply for CPP disability. Read the benefits information to find out if your LTD payment is tax-free or it’s taxable income. However, if you pay a tax or the full premium amount for the benefits then it is likely to be tax-free.
If you return to work after receiving LTD benefits but sustain another injury or you become ill again within 6 months, the recurrence clause states that you will be entitled to LTD benefits again. If you return to work after the 6 months of receiving LTD benefits, you will start by receiving STD benefits or employment insurance sick benefits.
This is the date in which the LTD benefit stops. It can be at the age when the employee turns 65 or returns to work. It could also be when the insured passes away or the insurer suspends the payment.