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Long-term Disability insurance

Long-term disability (LTD) insurance provides income replacement if you are unable to work for an extended period due to illness or injury. It ensures financial stability by paying a percentage of your regular income, typically between 60 and 85 percent, after you have been disabled for a specific waiting period known as the elimination period. LTD benefits continue until you recover, reach a set benefit end date, or reach retirement age, depending on the terms of the policy.

How It Works

LTD insurance steps in when a disabling illness or injury continues past the early short-term stage defined in your contract and you are unable to complete the duties of your own occupation. It generally begins once short-term disability insurance, employer sick leave, and Employment Insurance sickness benefits come to an end, with short-term coverage typically paying benefits for up to six months first. After a claim is approved there is a waiting period, the number of days from when you become disabled until benefits begin, which can run anywhere from 30 days to a year before the monthly benefit starts. In Canadian group and individual coverage, the claim is then governed by the policy's disability definition, proof requirements, offsets, benefit percentage, and duration rules, and depending on the nature of the disability, income replacement can continue up to age 65.

Example:

A Canadian worker is diagnosed with cancer and cannot return to their job after several months of treatment. Their employer sick leave and short-term disability benefits are exhausted, so they apply for long-term disability under their group plan once the elimination period has been satisfied. The claim is first accepted under an own-occupation definition, meaning benefits are paid because they cannot perform their original role. About two years later the file is reassessed under an any-occupation standard, which asks whether they could do other suitable work. If the plan pays to age 65, that endpoint applies only as long as they keep meeting the policy's disability definition.

What to Watch For:

Watch how your policy defines disability, because the standard often becomes more demanding as a claim ages. An early phase may apply an own-occupation test, asking whether you can still do your original role, which can later shift to an any-occupation test, asking whether alternate suitable work would defeat the claim, with a maximum benefit period setting the latest possible endpoint for benefits. It is also worth knowing whether benefits received through a company plan are taxable, since in Canada that depends on factors such as whether the plan is a group or non-group plan and whether your employer has contributed to the premiums.

Related Terms

Effective Date

The effective date is the day your insurance coverage officially begins. From this date forward, you are eligible to receive benefits for covered health, dental, life, or disability expenses under the terms of your policy. The effective date is established once your application has been approved, all requirements are met, and the first premium payment has been received, unless otherwise specified in the policy.

Policy (Contract)

A policy, also referred to as a contract, is the legally binding agreement between an insurance company (the insurer) and the policyholder that defines the terms, conditions, and obligations of coverage. It outlines what is insured, the benefits provided, the premium amount, exclusions, and the responsibilities of both parties. Once the insurer accepts the application and the first premium is paid, the policy becomes active and enforceable.

Misstatement of Age

Misstatement of age occurs when the age of the insured person is recorded incorrectly on an insurance application or policy. Because age is a key factor in determining eligibility, premiums, and benefit amounts, any error - whether accidental or intentional - can affect the terms of coverage. The misstatement may be discovered during underwriting, at the time of a claim, or during a policy review.

Short-term Disability Insurance

Short-term disability (STD) insurance provides temporary income replacement when you are unable to work for a limited period due to illness, injury, or surgery. It helps protect your income during the early stages of a disability, usually before long-term disability (LTD) benefits begin. This coverage ensures financial stability while you recover and are expected to return to work within a few weeks or months.

Lapsed Policy

A lapsed policy is an insurance contract that has ended because the required premium was not paid within the grace period. Once a policy lapses, coverage stops, and the insurer is no longer obligated to pay any benefits for claims incurred after the lapse date. A lapse can occur in any type of insurance - including health, dental, life, or disability - when the policyholder fails to make a payment by the due date and does not bring the account up to date before the grace period expires.

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