What is Long-Term Disability Insurance?

When short-term disability (STD) insurance runs out and you are still unable to return to work, what is your next option?

Long-term disability (LTD) insurance isn’t something you ever want to be in a position to need, but if ever do you’ll be grateful it’s there. Like STD insurance, it provides financial assistance to an individual who is unable to work because of an accident, injury, or illness, and can be included within your employee benefits package or as a stand alone policy.

True to its name, LTD payments can cover you for a long period of time—as much as several years or even decades.  When you qualify, it protects one of your most valuable assets, your income. The truth is your odds are 1 in 3 to becoming disabled for 90 days or longer before the age of 65, and the average length of a LTD lasts 5.75 years!

What benefits do you get from long-term disability?

When you qualify for LTD benefits, you’ll get a monthly payout to cover everyday expenses like your housing, food, utilities, medication etc. Depending on the structure, LTD policies can pay out benefits until you reach 65 years of age and can begin to access the Canada Pension Plan. Depending on your LTD policy, you could receive up to 85% of your salary. It’s important to note however, that no disability policy will ever cover 100% of your income as there needs to be some motivation to recover and return to your job.

LTD requires ongoing evidence that you are unable to return to the labour force in some fashion, and includes regular documentation and medical reports, so it can help to keep records beyond that of your doctor’s office to ensure a potential claim goes smoothly.

Are LTD benefits taxable?

If your LTD is part of your employment benefits, it depends how the premiums are paid as to whether taxation becomes a factor. If your employer pays all or part of the premium, then your benefits are taxable. If you pay the entire amount, then benefits are non-taxable. This means it is usually advantageous to have your insurance premiums paid personally from after tax employment dollars. If you hold a stand-alone LTD policy (perhaps because you are self employed, or your group benefits don’t cover enough of your income before benefits are capped) these policies would also be best paid personally to avoid taxation.

If you have questions about your own disability coverage reach out to Statera Financial Planners, we can help!