Short and long term disability insurance can provide employees with income replacement should they become disabled due to an injury or an illness. It is a great feature to add to your group plan.
Typically, a group plan through your place of employment provides three different levels of coverage:
If employee is sick or injured, they receive full pay for a short period of time (usually a few days or up to a few weeks, sometimes longer, depending on the employer). This is coverage provided by the employer, usually at no cost to you.
Short Term Disability (STD)
This coverage begins when your sick leave runs out. Most short term disability plans pay a percentage of normal earnings – for example, 70 per cent – up to a certain length of time. Typically, this can be up to 15, 26 or 52 weeks. Some employers, however, choose not to provide short term disability benefits, relying
instead on Employment Insurance (EI) disability benefits.
Long Term Disability (LTD)
This coverage starts when your short term disability (or EI) benefits run out. Typically, the goal is to replace 60 to 70 per cent of your normal income, but there is always a maximum dollar amount (e.g., $5000 per month). Given this, if you earn a high income, group LTD plans may replace less than 60 to 70 per
cent of your pre-disability earnings. LTD benefits are usually paid for up to two years if you are unable to perform your regular occupation. After that period of time, you may have to be disabled from performing any occupation for the benefits to continue.
Many plans include rehabilitation provisions designed to assist you in getting back to work. In most cases, you are required to participate in programs that are appropriate to aid in your recovery.
LTD benefits are usually reduced (or “offset”) by any benefits you may receive from CPP, QPP or WCB/WSIB. You can also receive disability benefits from other sources that could be taken into account when your group disability benefits are calculated by the insurance company. Read your benefits information carefully to find out what types of other benefits or situations could lead to a reduction in the benefits from your group disability insurance plan.
Your employer may pay the full cost of your disability coverage, or you might have to contribute through payroll deductions. Generally, if you pay the full cost of the premiums, any disability benefits that you receive will be tax free. If your employer, union or association pays all or any part of the premiums for you, then any
disability benefits you receive will be taxable.