Canada: Understanding Long-Term Disability Insurance

Accidents are an unfortunate part of life, which is why it makes sense to have insurance to protect your financial well-being.

Long-term disability (LTD) insurance provides financial assistance if you are unable to complete your assigned work duties due to an illness or injury. While many people are familiar with concept of an LTD policy, there are many moving parts. That is why having some understanding of this type of insurance can be beneficial.

At Gluckstein Lawyers, we can explain your basic rights and obligations when it comes to an long-term disability claim. Claim denials or a termination of benefits are not uncommon, but that doesn't mean you should accept the insurance company's position when they say "no". We will examine the available remedies and decide on the most appropriate course of action.

How Does LTD Work?

Long-term disability is a benefit that your employer may offer, either paying all of the premiums or sharing the cost with you through regular payroll deductions. You can also purchase long-term disability coverage privately. It should be noted that if your employer's plan includes group disability coverage, these policies tend to have lower benefit amounts. You may therefore want to consider buying additional coverage to further protect yourself. It is also prudent to review what your coverage includes and the limitations and restrictions of the policy.

Who pays for the policy is usually important because there may be quite different tax implications. If you paid and you make a claim because you are unable to work, the money you receive is not taxed. However, if your employer pays the full amount of the policy and you make a claim, that would be considered a taxable benefit, just as a car allowance would be taxed.

It is not at unusual for an employer to also offer what is known as short-term disability insurance. This comes into play when an employee is unable to work due to an injury or an illness that typically lasts three to six months. The assumption with short-term disability is that you will be back on the job within a few months. Anything longer than that and the worker may be eligible for LTD, which could conceivably continue until age 65.

When Does It Start?

One of the first questions people ask when they make is claim is how long do I have to wait before starting to receive disability payments? That depends on the type of policy. With short-term disability, payments are fairly quick and may reflect your normal pay cycle. If you have to be off work for longer than just a few months, you may have to deal with what is known as a qualifying or elimination period. This can range from three to six months. In the meantime, you may be able to receive Employment Insurance sickness benefits.

You should be able to find the answer to these questions in your policy or through your company's human resources department if they have one.

Another important question people ask is how much will I be paid? While everyone would like to receive 100 per cent of their salary, the reality is that LTD benefits will typically cover anywhere from a low of 50 per cent to perhaps a high of 80 per cent of your salary. It is quite common for someone to receive two-thirds (66 per cent) percent of their income under group plans.

Defining Disability.

Every LTD policy will define the term "disability," but some generalizations can be made. If you are substantially unable to perform the essential functions of your job according to the medical evidence that you have submitted, and assuming the insurer considers that evidence to be sufficient and credible, you will be deemed to be disabled. That does not mean you have to be completely unable to do anything either physically or mentally; only that you cannot perform the core functions of your job.

Whether you meet the eligibility test will depend largely on the type of work you do, the nature of the disability, and the strength of the medical support that accompanies your claim.

Commonly, during the first two years of disability, the disability test will be based on whether you are unable to perform the essential functions of your own job.

However, after two years the definition of disability commonly changes such that the insurer will only consider you to be totally disabled if you unable to do any job. In other words, if the insurer considers that you are reasonably capable of doing some job other than your own based upon your experience or education, and/or can be retrained (at the insurer's expense) to engage in a different form of employment, you may not be considered disabled from an insurance perspective.

The law has evolved in this contentious area such that the work the insurer believes you to be capable of performing must be commensurate with your relative position in the workforce, your age, and other real-world factors. For example, if you were trained and doing middle-managerial work as a network administrator before you became disabled, the insurer will not likely succeed in an effort to have you work as a minimum-wage server behind the counter of a fast-food restaurant, or as a parking lot attendant.

Inflation, Deductions and Adjustments.

If your disability keeps you from returning to work, you may be wondering if your monthly benefits will keep up with inflation. Again, that is policy-specific. Some benefits are indexed and are adjusted each year to address external factors such as inflation. Others might not be, in which case you may have to deal with the problem that the purchasing power of your benefit will dramatically decrease over time.

You may also have to deal with adjustments if the income level for the position you occupied otherwise rises while you are on LTD. The benefit you receive may not reflect this.

The adjustments don't necessarily end there. LTD policies have provisions built into them giving the insurer quite an array of deductions or offsets that they can rely upon. For example, if you are receiving $4,000 a month in LTD payments and you are also eligible to claim Workers' Compensation or government assistance, those benefits may be considered an offset and reduce the amount the LTD carrier is required to pay.

As well, if your employment is terminated, the severance package you receive could reduce the amount of your benefits. The wording of your policy will typically indicate the types of offsets the insurance company may be entitled to.

On a related note, LTD insurers will, at some point, require you to make an application for Canada Pension Plan disability benefits. If your application is successful, you can expect your benefits to be adjusted. Moreover, a partial refund may be due to your LTD insurer if the Canada Pension Plan disability benefits are approved retroactively. If you fail to apply for such benefits, the insurer may very well be within its rights to deduct the amount that you would have received had you applied, on the assumption that you would have been approved.

Also worth keeping in mind is that unionized workers who have benefit plans that were obtained as part of a negotiated collective agreement might not be able to sue the LTD insurer but instead may have to dispute a denial through the grievance procedure in place for that employer and union.

You Have Legal Rights.

If your claim has been denied or your benefits have been terminated, it is essential to consult a lawyer who has expertise in long-term disability. You normally do not need to go through the insurer's internal 'appeal' process first, even though they may provide that option. Many lawyers will recommend against doing so. LTD insurance is complex area and you need someone who can give you frank advice and a fair indication as to the strengths or weaknesses of your case.

Much will depend on the medical evidence that has been generated in your file. Many times, we see claims where the medical evidence is deficient. That doesn't mean that it can't be effectively developed in the right case to address the issues in question.

You will want to act expeditiously, keeping in mind that there are timelines for bringing lawsuits in most areas of practice. A personal injury lawyer who understands disability insurance laws and how to litigate long-term disability insurance claims will know what experts to hire, how to draft appropriate pleadings that protect your interests, how to prevent insurance companies from over-reaching, and how to position your case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.