Long Term Disability (LTD) is a benefit that may not be the first thing your employees consider but it definitely is a great addition to any group benefit plan. The employees usually pay it and benefit in this case is tax free to them. Group rates are cheaper for employees over premiums they can obtain individually. Employee does not need to go through approval process when applying for disability insurance through the group plan (unless plan allows and plan member decides to purchase additional coverage, in that case insurance company will require information about the individual’s health status to increase the benefit). Last, but not least is that LTD benefit gives employees valuable financial safety net. Although employees will often express a greater demand for more visible benefits, a Long-term Disability benefit is far more important in protecting the financial well-being of employees. Very few employees will ever be forced to sell their homes because they need eyeglasses or dental work. However, a loss of income can have much more serious repercussions.
Here are some factors to take in consideration when choosing the LTD piece for your Group Benefits Plan:
It is the period of time that the claimant must be disabled before receiving benefits. The most common elimination period is 17 weeks so that the LTD benefit integrates with the Employment Insurance (EI) plan. However, the elimination period may be as short as 3 months and as long as one year. The length of the elimination period has a direct impact on the LTD premium as a longer elimination period will result in fewer claims. For plans that include a Short Term Disability benefit, the Long Term Disability plan is designed so that the elimination period ends and benefits begin as soon as Short Term Disability benefits cease.
The benefit schedule is generally based on a percentage of the employee's pre-disability gross earnings. It will consider the tax status of benefit and any offsets. When determining an appropriate benefit schedule, it is also important to consider the plan's "All Source Maximum". The purpose of the all source maximum is to prevent situations in which an employee's total income (from all sources), while disabled, comes too close or exceeds his/her pre-disability earnings effectively eliminating the financial incentive for the employee returning to work.
a non-evidence maximum and an overall benefit maximum. These maximums are determined by the size of the group, the volume of insurance and the nature of the business.
The non-evidence maximum (NEM) is the amount of insurance that the insurer will provide to employees without providing medical evidence of good health. A high non-evidence maximum is therefore an important feature of the LTD plan as it guarantees employees a minimum level of coverage (subject to eligibility based on income). For employees who are eligible for coverage in excess of the non-evidence maximum, medical evidence must be provided to the insurer. The insurer will generally grant the excess coverage only to those individuals who are determined to represent a normal level of risk. The overall maximum is the maximum amount of insurance that the insurer will provide under the terms of the contract.
The benefit period is the maximum amount of time for which LTD benefits are payable. The most common benefit period is to age 65.
There are two basic definitions of disability, both relating to an individual's ability to work: own/regular occupation and any occupation. Under the own occupation definition of disability, an individual is considered disabled if he/she is determined medically to be unable to perform the essential duties of his/her own/regular occupation. Under the any occupation definition of disability, an individual is considered disabled if he/she is determined medically to be unable to perform the essential duties of any occupation for which he/she is reasonably qualified by training, education or experience.
Most insurers will provide LTD coverage with an "own/regular occupation" definition available for the first 2-5 years. The less restrictive the definition the higher the premium.
Our dedicated Group Benefits Team will provide you with a qualified advice and guide you through creating and setting up LTD plan that is right for your business.