Area of Law: Personal Injury
Answer # 488
What is disability insurance?Region: Ontario Answer # 488
Disability insurance, sometimes called disability income insurance, covers an individual for loss of income due to a disability, which may be due to a physical injury, an illness, or a psychological disorder. Because disability insurance is based on income replacement, you must be working to purchase it.
There are two main types of disability insurance available: Government insurance programs, and Private insurance plans. The type of plan a person has will affect their eligibility for benefits and the type and amount of benefits they will receive.
Government disability insurance programs
There are three government insurance programs available to working Canadians who meet the eligibility requirements and have paid the required insurance premiums.
In Ontario, the Workplace Safety and Insurance Board (WSIB) provides disability benefits to sick or injured workers. Most workers in Ontario are covered by Workplace Safety and Insurance. Your benefit entitlement, however, does not depend on whether your employer registers with the Board. If you are an employee covered by Workplace Safety and Insurance, you will be eligible to collect benefits if you have a work-related injury or disease which causes you to lose wages or to require medical treatment. Surviving relatives of a worker who dies in a work-related accident or from a work-related disease are also eligible to collect benefits.
1. Employment Insurance (EI)
Federal Employment Insurance (EI) sickness benefits are available to workers who have paid EI premiums; and are unable to work due to illness or injury, or are quarantined.
2. Canada Pension Plan disability benefits
These benefits are available to people who have made contributions to the Canada Pension Plan (CPP), and whose disability prevents them from working at any job on a regular basis (includes benefits for disabled contributors and benefits for their dependent children).
Private disability insurance plans
Employer provided group disability insurance plans
Private group insurance plans are often provided by employers, but may also be available from unions or through associations. Group insurance plans provide disability coverage to employees (or individuals who are part of the union or association) who become disabled and are unable to work. Although employers often pay for the group disability insurance plans, employees may sometimes be required to contribute to the premiums through regular deductions from their pay. If your employer pays for the policy, your benefits will be taxable. If you pay for part or all of the premiums yourself, then you will not pay tax on that portion of benefits.
If your plan is fully employer funded, it is important to find out:
- if you will continue to receive benefits if the employer ceases to do business (such as becoming bankrupt) and,
- if you will continue to receive benefits until you get new coverage should you leave your job.
Private individual disability insurance plans
Individuals may also purchase their own private disability insurance policies. Individual policies are most often purchased from insurance agents, but in some cases, can also be purchased directly from an insurance company or bank. The two most common types of individual disability insurance purchased are short-term and long-term disability insurance.
Who should purchase individual disability insurance?
Whether an individual should purchase disability insurance and if so, how much, depends on a number of factors, such as:
- if your employer does not provide disability insurance
- if your employer provides insurance, but you do not feel the coverage is enough
- if you are self-employed.
Individual disability insurance plans for self-employed individuals
Self-employed people can purchase individual disability insurance plans that provide income replacement as well as coverage for certain business expenses, such as overhead costs, deferred income taxes, and bank loans or interest on loans.
Benefits of private disability insurance
Individual insurance plans are bought for many reasons and provide a number of different benefits.
- They provide the most complete and flexible coverage available because the individual can pick and choose the type and amount of protection they need; and
- Unlike employer provided group coverage, individual insurance plans do not end when you change your job or leave an association, they move with you.
Because you are the one paying the premiums for an individual policy with after tax income, should you need to make a claim the insurance benefits are tax-free. Premiums for individual disability insurance policies are usually more expensive than group coverage insurance premiums.
Types of coverage under private disability plans
The three main types of coverage available in most policies are sick leave, short-term disability, and long-term disability. Private disability insurance plans are provided by various insurance companies and can differ with respect to what type of coverage is provided, how much will be paid and for how long. The benefits provided by these plans also vary depending on the needs of the employer, or the individual.
- Sick leave benefits usually provide full pay for a short time, such as a few days or a few weeks.
- Short-term disability (STD) policies cover the loss of wages for a short period (usually up-to 6 months) after sick leave benefits run out. STD benefits are often paid for by the employer and included in the policy. However, some employers choose not to provide short-term disability benefits, and employees rely instead on government-funded Employment Insurance (EI) sickness benefits.
- Long-term disability (LTD) coverage begins after short-term disability or EI benefits run out. As the name suggests, LTD benefits are paid for a much longer period of time, usually for up-to two years if the individual cannot work at their regular job. After two years, if the individual is unable to work at any job, they may be eligible to continue receiving benefits until age 65.
How much do private insurance disability benefits pay?
Employer provided policies
Employer provided disability insurance benefits generally replace 60% to 85% of an insured employee’s regular income, up-to a maximum amount, for a specified time.
For individual, private disability policies, benefits are pre-determined by the policy. The amount is based on a formula taking several factors into account, including the premium cost, percentage of gross income to be paid, and the maximum amount of benefits.
Can you collect more than one source of disability benefits?
Insured workers can receive benefits from more than one disability insurance plan at a time. However, any benefits you receive from one insurance plan can offset (reduce) income you get from another insurance plan. If you have multiple insurance plans and are collecting disability benefits, your total income from all the benefits will usually not be higher than 60% to 85% of your regular pay. In many cases, the amount of your long-term disability insurance benefits will be reduced as soon as you begin getting other sources of benefits, including government payments from CPP and WSIB.
Getting legal advice and help
If you have a long-term illness or injury that makes you unable to work, the benefits you may be entitled to depend on if you have insurance and what type.
If you do not have private insurance, but you were employed
If you do not have private insurance through your employer, or through your own private plan, you may be eligible to receive WSIB insurance benefits or EI benefits. Keep in mind that to be eligible for WSIB benefits the injury or illness must be work-related.
If you have private group or individual insurance
If you have disability insurance provided by your employer, or through your own private plan, you can make a claim for benefits either through your employer or directly with your insurance provider. To claim disability benefits under a group insurance plan or a private, individual insurance plan, your disability does not have to be as a result of an illness or injury that occurred on the job. It is important that your claim be submitted properly and in your best interests.
Even when an individual has a legitimate cause for claiming their long-term disability benefits, often insurance companies will initially deny the claim, or offer an amount much lower than asked for.
If you or someone you care about suffers from a long-term disability and has disability insurance, contact our preferred experts. They can help you get the LTD benefits you are entitled to, even if your claim was denied. They offer a free consultation and do not charge up-front fees:
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