Long term disability benefit coverage (“LTD”) is a type of insurance that may be available to employees, often as part of a group benefit package or program. It is a contract between the insurance provider (benefit carrier) and the employer, which benefits the employee. Often the employee must contribute to the monthly premium for the LTD coverage, at least partly, which is usually deducted from the employee’s pay and remitted by the employer directly to the benefit carrier (usually as part of the total monthly expense for the group benefit package being made available to the employee). LTD terms and conditions are not usually the same for every insurance company or benefit carrier, but often features of this coverage are the same, or similar.
For example, most LTD policies require an “elimination period”, being the period required for the employee to be absent from work due to a disability before the coverage will be triggered. Often an employee will be required by the terms of the coverage to apply for and exhaust any available short-term disability benefits (including through employment insurance sick benefits) and accumulated sick days. An employee may also be required to apply for Canada Pension Plan disability benefits, too.
LTD benefits are typically a percentage of the employee’s regular wages or pay (based on the pre-disability employment). The percentage may depend on the amount of the premium paid for the coverage, or other factors, and largely depends on the contract negotiated by the employer and the benefits carrier. If, while LTD is being received, an employee receives income from another sources, such as workplace insurance benefits, or Canada Pension Plan benefits (including disability-related payments), those amounts will usually be deductible, or set-off, against the LTD payment. The LTD benefit received may be taxable or non-taxable to the employee, depending on whether tax was paid on the payment of the monthly premiums by the employee. If so, it is likely the LTD benefit may be paid on a tax-free basis to the employee.
Generally, LTD will be available for a period of two years in terms of the employee’s ability to perform his or her own job. However, after this period, the coverage terms will shift to whether the employee could perform “any occupation”, not only his or her own vocation. This is a higher test in order to qualify for ongoing, continuous LTD in future. This assessment may require medical examination and/or information to review the “any occupation” condition.
If LTD is available beyond the two-year “any occupation” threshold, it likely will continue until the employee turns age 65, returns to work, passes away or the benefits carrier conducts a further assessment and changes, or suspends, the ongoing benefit payment. If an employee returns to work after receiving six months or more of LTD benefits, but suffers a further disability, generally the employee will have to exhaust any short-term benefits available, including through employment insurance sick benefits, possibly with the requirement to apply for CPP disability benefits.
The employer’s contract with the benefits carrier is the critical document for LTD rights and entitlements. The coverage is usually summarized by a benefits booklet, which should be requested from an employer prior to accepting a position, or during employ, to review and understand the terms and conditions of that specific LTD plan.