Getting Familiar with Long-Term Disability Benefits

20-Jul-2015by Donald Chu, CEBSclicks: 2276

No one wants to think they will need disability benefits. But when life throws us a curve ball, disability benefits allow employees to set aside financial worries and focus on what matters most—their health. 

In a recent article titled “5 FAQs about Short-Term Disability Benefits”, I shed some light on short-term disability claims. However, when it comes to extended leave beyond the short-term disability maximum benefit period, knowing about long-term disability (LTD) benefits becomes important.

While working with an experienced benefits consultant can help clients choose the right offering and streamline the claims process, here is an overview of long-term disability benefits:

The High-Levels on Long-Terms Disability Benefits

In the event of an accident or a long-term illness, which prevents an employee from preforming his/her job duties, an employee can submit a claim for long-term disability benefits (assuming that the company has that benefit). Applying for LTD usually follows a short-term disability claim (or the expiration of Employment Insurance Disability Benefits). The amount paid is dependent on what the employer decides to offer when setting up the plan, but usually consists of paying out 2/3 or 66% of the pre-disability salary on a monthly basis, up to set maximum dollar figure.

LTD group plans also come with a guaranteed Non-Evidence Maximums (NEM). This is a highest amount of monthly coverage that the insurer will provide without requiring a medical questionnaire. The higher the number of people in the group, the higher the non-evidence maximum. The advantage here is guaranteed level of coverage for employees who might not be able to obtain for medical reasons.

The LTD claims process is similar to short-term disability, whereby a detailed form and three written statements must be submitted: a statement from the doctor, indicating the reason and expected duration of absence, a statement by the employer, explaining the employee job requirements, and a statement by the employee, detailing how they are no longer able to carry out their occupation. Once approved by the insurer, long-term disabilities under a group insurance plan will cover the employee for up to two years, until another reassessment takes place.

After Two Years, the Terms OWN and ANY Become Important

During the initial assessment phase of the LTD claim (normally two years), the insurance provider will consider whether or not the employee can carry out their OWN occupation. If following the two years, the employee is still unable to fulfill the mandate of their own occupation, the insurance company will consider whether they can carry out ANY occupation. Another definition called REGULAR occupation that some insurers use is whether the employee can do a job they are suited for based on their education, training, experience, medical condition, functional abilities and earnings test.

For instance, in the event the employee was working as an accountant, and following an accident, head trauma left them unable to fulfill their number-crunching duties, their skill levels would be re-assessed following the two year maximum. At that point, if they are still unable to fulfill the duties of an accountant, but are able to fill a more manual position in the company, such as packing boxes, insurers will work with employers to try to rehabilitate employment with a more suitable position. 

Choosing Group Plans versus Individual Plans

Some employers offer long-term disability. Typically, employers who are concerned about their employee’s financial wellbeing would offer long term disability; whereas other employers perceive long term disability as costly or a personal matter that employees should look into on their own. 

Employees who do not have group LTD coverage, or professionals such as doctors, lawyers, accountants and executives will often source their own individual disability policies.

While the premium for individual insurance is higher and the application process can be perceived as more intensive, requiring a full medical assessment, individual long-term disability coverage is more comprehensive. For instance, in some plans, the definition of disability is solely based on their inability to fulfil there OWN professional duties up to age 65 or in certain cases age 71.

The Difference with Canadian Pension Plan Disability Benefits

The Canadian government does cover long-term disability through the Canadian Pension Plan Disability Benefit. The cases in which claims are accepted are extreme as the disability must be “severe and prolonged”. In other words, the person would have to be diagnosed with a mental or physical condition that would completely inhibit them from doing any sustainable and gainful work. The disability would be indefinitely long-term and may even result in death. In addition the employee must meet the stringent CPP contribution requirements.  CPP will pay a maximum of $1,264.59 per month (at the time of this writing, July 2015), whereas group long-term disability plans can pay upwards of 66.67% of a person’s pre-disability salary.  Usually group long-term disability benefits integrate with CPP benefits.

While group LTD plans are taken very seriously, the claims process can be less cumbersome. Group LTD claims are generally evaluated on a case-by-case basis by the insurer and approved once it has been proven that the employment duties cannot be carried out by the employee.

The Difference with Critical Illness Insurance Benefits

Many clients also want to know the difference between offering employees Group LTD and a benefit known as Critical Illness Insurance (CI). To clarify, these are two distinct and separate benefits that can be offered together, individually or not at all. With the CI benefit, if an employee suffers and survives the elimination period (usually 30 days, depending on the illness) from of any listed critical illness (up to 31 illnesses deemed critical by the insurer) such as a heart attack, stroke or life-threatening cancer, to name a few, they will qualify for a lump sum payout. The payout amount is determined by the employer when the benefit is put into effect, but can be set at any amount from $25,000 up to $500,000 and is received tax-free.

Some employers, especially those in highly competitive sectors, offer the CI and LTD benefits simultaneously.  It is possible that one might become disabled and not critically ill or critically ill and not disabled.  Providing both can provide financial security at a time the employee needs it the most.

How a Benefits Consultant Streamlines LTD Plans and Claims

The reality of life is that even of the healthiest or most health-conscious people can fall victim to illness or accidents. Companies who offer long-term disability and critical illness benefits help their employees maintain financial security at a time when they need it the most- when they are struggling with health issues. Since the offerings and claims of long-term disability benefits or critical illness insurance are not always straightforward, working with an experienced benefits consultant is always in a client’s best interest. At BenefitDeck, we help clients evaluate LTD benefits and CI plans that suit their organization, and offer hands-on support when claims need immediate attention. Want to add or review your LTD plan? Get in touch with our team.