Disability Benefits

What are they, and how do they work?

3 min read

Disability benefits are a common part of most employee benefits plans, but most employees don’t have a good understanding about how they work until they are actually facing a claim.  But these important benefits are there to protect us, and our income against unexpected things that life can bring our way. Read on to learn more about disability benefits, how they work, and why they’re important. 

What are Disability Benefits?

Disability benefits are basically insurance against the unexpected health challenges that life can throw our way.  These benefits provide income replacement for employees when they are unable to work due to illness and injury. The amount of replacement income you would receive from your disability benefits will vary depending upon your earnings.  These benefits typically replace about ⅔ of your weekly gross earnings for Short-term disability, and ⅔ of your gross monthly earnings for Long-term disability.

The difference between Short-Term and Long-Term Disability.

Benefit plans can include one, or both of two different types of disability benefits: short-term disability (STD) or long-term disability (LTD) benefits.  

A standard short-term disability plan will begin to pay on the first day when an employee is off work due to an injury, or hospitalization.   It will begin to pay on the 8th day when an employee is off work due to an illness.   Short-term disability pays for a maximum of 17 weeks if the employee remains disabled that long.   If a benefit plan does not include a short-term disability benefit, then the employees would use EI as their short-term disability support.

A standard long-term disability plan has a waiting period of 17 weeks; this allows you to transition from STD onto LTD without an interruption in pay.   Most long-term plans will pay an employee until they reach age 65 should they remain disabled that long.

What’s covered in a Disability Claim?

Disability benefits insure standard T4 income.  This can include regular commissions, as well as overtime and bonuses if they are paid regularly.  Carriers are beginning to consider insuring dividend earnings to business owners, but there are certain parameters that must be met for them to do so.

What happens when you make a claim?

When applying for a disability benefit, both the employee and the employer are required to provide some information.  The doctor who is treating the employee also needs to provide information about the illness or injury.  Adjudication of a disability claim is based on all that information; the physician’s statement is very important for the carrier to determine the employee’s situation.

To be accepted for disability benefits, your situation must meet the carrier’s contract definition.   Every carrier’s wording is a little different –  you can usually find this information in your employee handbook.

What do “Own Occupation” and “Any Occupation” mean?

Most contracts still have a 2-year “own occupation” period; this means that the employee must be unable to perform the duties of their own occupation throughout those 2 years to remain on LTD.   After the first 2 years, if the employee remains disabled, they must be unable to perform any occupation in order to continue to collect LTD.  

Disability Claims on the Rise

Over the last several years, disability claims have been increasing both in number of claims, and in duration of claims. The most common types of disability have also changed.  Now, we are seeing a higher percentage of claims related to stress, mental health issues, and illnesses rather than injuries.

These claims tend to last longer. It is also more difficult to know when a claimant is healed and ready to return to work.  It is much easier to determine work readiness when someone has a broken leg than when their disability is stress related.

The increase in claims has led to an overall increase in the cost of Long-Term disability as the claims pool sees a greater payout.

Employees often tend to undervalue their disability benefits; many of us believe we are invincible, and that we will never experience a disability.  However, for those who do need to claim for a disability, this benefit could be the most important of all the benefits provided by their employer. How else can you receive an income if you cannot work?  And without an income, how can you look after yourself and your family? This small benefit can make a huge difference in quality of life after an injury or illness.

Do your staff understand their benefits? Do you?  Get support from our team to make sure you have the right benefits to fit the needs of your company.