The Critical Importance of Long Term Disability Benefits

Ask most healthy working people to name their greatest financial asset, and more than likely, they will say ‘my house.’ A fair response. After all, maintaining and paying for a home is where a significant chunk of our income and time is spent. 

But for most healthy working people, it’s the wrong answer: A far greater financial asset is their ability to earn an income over the course of their career, often a long period of time. The consequences of not being able to do so can be financially devastating.

Most people have only a hazy understanding of the financial consequences of being unable to continue working due to mental or physical illness. We know that during our working lives, there is always the possibility of being laid off from one job and having to find another, but if chronic illness or a serious accident prevents us from working at all, the option of finding another job disappears. In fact, there are limited options for those employees; one of the options is Long Term Disability (LTD). 

As employment lawyers, we understand that few people think about the possibility of their working lives coming to a premature end. When it does happen, the questions are inevitably many. Here are answers to just a few basic LTD questions:  

How Do You Obtain Long Term Disability Benefits?

Most people who have Long Term Disability benefits have them through their employery, and typically, the cost of these benefits is shared between the employee and the employer. Having the employer pay for some (or all) of the benefits, while superficially attractive, also results in the benefit being taxable. Meaning if you ever receive money under the LTD policy, you will have to pay tax on the amounts you receive.

If, on the other hand, you pay for the full cost of the LTD policy, any money received would be non-taxable. Having a non-taxable benefit can make a huge difference in the event you need to rely on LTD benefits, as you are often receiving only a portion of your prior income and may be struggling to live off significantly reduced income. 

It is important to explore with your employer or your union whether your salary can be increased by the value of the employer contribution, and then you can make the full payment for the  LTD policy.

Another option is to buy full LTD insurance yourself if your employer does not offer this benefit as part of your remuneration package. 

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 also 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 seek advice from an LTD insurance expert.

What Happens To Your Long Term Disability Benefit If You Lose Your Job?

It is extremely common for people to lose their LTD benefits shortly after they lose their jobs. Termination letters typically contain provisions ending Long Term Disability benefits 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. Insurers will often not sell LTD insurance to the unemployed, and that compounds an already stressful situation.

One way to avoid this scenario is to purchase LTD insurance independently. (See next question).   

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 LTD benefits policy that you have arranged for outside of your employer. That way, should you lose your job, your coverage continues. This type of arrangement will be particularly important for those with precarious employment.

Own Occupation Disability Insurance – The Gold Standard, but what is it?

Most LTD policies provide for “own occupation” disability insurance coverage for a period of two years. This means that should you be unable to perform the essential functions of your own job, you would meet the definition of disability and should receive benefits.

After that initial period (usually two years), in most insurance policies, the coverage definition changes to “any occupation.” This means that even if you continue to be unable to complete the essential functions of your own job, say as a teacher, if you can do any work, you may no longer be entitled to benefits. If this other occupation is something for which the employee is suitable by reason of their background, the insurer can insist they take the job or risk having their benefits cut off.

It is possible to independently purchase “own occupation” disability insurance coverage at an increased cost. This will provide you with LTD benefits, should you be unable to perform the essential duties of your own occupation. It will typically last until age 65.

[This article is for informational purposes only and does not constitute legal advice, which cannot be given without consideration of your individual circumstances.]