When seeking advice for long term disability benefits, most people have only a hazy understanding of the financial consequences of being unable to work due to mental or physical illness. Most people assume that their largest asset is their house, and focus their time, attention and financial resources on maintaining and paying for their home. In fact, a far greater asset is likely their ability to earn an income, often over a long period of time. The consequences of not being able to work can be financially devastating.
How Do You Obtain Long Term Disability Benefits?
Most people who have Long Term Disability benefits have them through their employer. Typically, the cost of these benefits is shared between the employee and the employer. It is important to note that the effect of having an employer contribution, while superficially attractive, also results in the benefit being taxable. If, on the other hand, the employee had made the full contribution, the benefit would be non-taxable.
It is important to explore with your employer or your union whether remuneration can be structured such that salaries are increased by the value of the employer contribution, while Long Term Disability contributions are made by the employee.
Do You Have Sufficient Long Term Disability Benefits?
The answer to this question will depend on a variety of factors, including age, savings, cost of benefits, number of dependents, etc. It is probable that the answer will change over time, as your personal circumstances change. Given the importance of the benefit, should you be unable to work, it is important to consult with an insurance expert.
What Happens To Your Long Term Disability Benefit If You Lose Your Job?
It is extremely common for people to lose their Long Term Disability benefits shortly after they lose their jobs. Typically, termination letters contain provisions whereby Long Term Disability benefits cease after the statutory notice period found in the Employment Standards Act. This period is often a matter of weeks, rather than months. After this period, former employees are frequently left with no LTD benefits, while they look for other work. Even if they attempt to get their own Long Term Disability Insurance coverage, many insurers do not provide such coverage to people who are then unemployed. Many people are then left without LTD coverage, which can be financially devastating, should they become unable to work due to a physical or mental illness.
How Can You Protect Yourself, such that Long Term Disability Benefits Are Not Lost?
One method of ensuring LTD protection in the face of uncertain job security, is to have your own Long Term Disability benefits policy. Should you lose your job, your coverage continues. In addition, as you pay the premiums, the benefits are non-taxable, so lower benefits may still provide enough insurance protection.
Given the precarious nature of employment, people should explore obtaining their own disability benefits coverage.
Own Occupation Insurance – The Gold Standard
Most Long Term Insurance benefits policies provide for “own occupation” coverage for a period of two years. Should the employee be unable to perform the essential functions of their occupation, benefits should be provided.
However, after that initial period, the coverage definition in most Long Term Disability Insurance policies changes to “any occupation”, which will then usually apply until age 65. This means that even if the employee is unable to do their own occupation, say as a teacher, they may be able to work as a real estate agent. If this other occupation is something for which the employee is suitable by reason of their background, they may be obliged to do this work or risk having their benefits cut off.
It is possible to purchase “own occupation” Long Term Disability insurance at an increased cost. It does permit the employee to receive LTD benefits, should they be unable to perform the essential duties of their own occupation, usually until age 65.