August 2014 Newsletter
Buckle Up with LTD Coverage
Long Term Disability (LTD) coverage is similar to wearing a seatbelt in your car. There is a more than likely chance that you’re not going to need it every time you take a drive, but if you ever do it can truly be a lifeline. People never think that they are going to be affected by a disability in their working years, however, an estimated 3.8 million adult Canadians reported limitations to their daily activities due to a disability in 2012. This is representative of 13.7% of the adult population.
How it works:
LTD insurance is designed to provide replacement income for disabilities lasting an extended period of time. Employees who have this benefit receive a portion of their monthly earnings to compensate for their loss of ability to work. LTD coverage is generally considered to be the most important group benefit, as individual disability coverage must be medically underwritten, often making it difficult to obtain, and usually more costly.
LTD coverage follows any salary continuance, Short Term Disability, or EI sickness benefit coverage. The short term will cover the first period of disability (quite often up to 6 months), and if the individual is still unable to work after this time, the claim will then be transferred to LTD coverage.
What does it cover?
The coverage varies between different policies. The most common definition of disability under a group insurance contract is any type of injury or illness that prevents an individual from being able to work at their own occupation for a period of time – typically two years – and any occupation which they may be qualified, or become qualified to do, thereafter. It should be noted that employees with Workers’ Compensation coverage may be eligible to receive benefits through that program for disability due to work related injuries only, whereas group coverage is normally broader and less restrictive.
However, group insurance policies may have exclusion clauses which restrict claims and reduce liability. For example, a standard provision in most LTD plans is the exclusion and/or restriction for pre-existing conditions. This provision is designed to protect the plan from the negative cost impact from the high claims that could result when an employee with a pre-existing condition joins the benefit program. Therefore, new employees may have more restrictive coverage than those who have been on the benefit plan for a longer period of time.
What else do I need to know?
LTD coverage is not standardized. This means that each plan provides the insured with different rights and obligations. This makes it impossible to outline the exact steps to take in the event of a claim, without reviewing your specific policy. There are a few common guidelines though, which apply to LTD claims and may be of interest to employees who are receiving benefits:
- All plans require medical evidence to support LTD claims and you must be receiving regular, ongoing care and treatment appropriate to the disabling condition. If the provider tries to cancel LTD coverage at some point in time and you feel like you are still unable to return to work, it may be because certain forms or information related to this evidence have not been completed. The best step to take in this situation is to work in collaboration with your doctor and the insurer in resolving any disputes. All insurers have an appeal process should you believe your claim has been adjudicated incorrectly.
- Most LTD plans require you to apply for Canada Pension Plan (CPP) Disability Benefits if your disability is of a long term and ongoing nature. By doing so your plan provider can use this benefit to offset the cost of your claim. In other words, if you are awarded CPP benefits, your insurance company can deduct the amount that you are awarded from the amount that they are paying you for your LTD benefits.
- LTD benefits are taxable if your employer paid any portion of the premiums for your coverage. This means that the LTD income received from the insurer must be declared on your annual tax return. LTD benefits will not be taxable, however, if you paid 100% of the premium for this coverage.