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What is Long Term Disability Insurance and How Does it Work?

By: Benefits by Design | Tuesday July 9, 2019

Updated : Friday August 28, 2020

When you think of a disability, you’re likely thinking of a permanent disability, such as paralysis or a serious illness, that impacts a person’s ability to work and earn an income.

For example, consider a construction worker who becomes paralyzed from the waist down after a car accident. He’s no longer able to perform the duties of his normal job and earn his income, so what does he do? How can he continue to support himself and his family?

That’s where Long Term Disability (LTD) Insurance comes in.

What is Long Term Disability Insurance?

Long Term Disability (LTD) Insurance provides financial assistance when a covered plan member is unable to work due to an accident, illness or injury that prevents them from completing the duties of their own occupation. Depending on the nature of the disability, the benefit can provide income replacement up to age 65.

Why Should Employers Offer Long Term Disability Insurance?

Could your employees’ family maintain their current lifestyle if they were unable to work and bring in an income? Would they be able to pay their mortgage and utilities? Could they afford their car payment or be able to purchase enough groceries and clothing for the family?

These are tough questions, but the answers are important. Accidents happen when we least expect them. In cases where injury or illness prevents an employee from working and bringing in an income, protection is a must.

Here are the three big reasons why LTD should have a place in your employee benefits plan.

Provides Income Replacement

No one likes to think about needing a product like LTD, but in dire circumstances, it can supplement lost income in cases where an employee is unable to work and earn an income for a long time. This provides financial support for the family, reduces the financial burden, and hopefully makes a very stressful situation a little easier.

Accidents Happen

A typical 30-year-old has a four times greater chance of becoming disabled than he does of dying before age 65. A full one in six Canadians will be disabled for three months or more before the age of 50.

All that proves that it really can happen to anyone.

Attract and Retain Top Talent

Disability Insurance is a highly sought-after benefit. Prospective employees are looking at an employer’s benefit plan more and more. The more comprehensive the plan, the better,  and Disability Insurance is near the top of the priority list.

How Does Long Term Disability Insurance Work?

Specific definitions of disability will vary by Insurer, however, LTD generally provides coverage for injuries or illnesses that prevent someone from performing the duties of their own occupation. LTD offers supplementary income for two years in their own occupation or up to age 65 if they are unable to work in any occupation.  

For example, consider these common claims:

What is Short Term Disability (STD) Insurance?

LTD isn’t the only form of Disability Insurance!

As the name implies, Short Term Disability (STD) exists to replace a regular income for a short period, typically a maximum of 13 – 26 weeks. During this time, an employee can be off work while receiving a portion of their income. A very high percentage of employees will return to their job within the short term disability time frame.

Take a look at this infographic to understand how Short Term and Long Term Disability Insurance work to help protect the health, wealth, and wellbeing of employees.

Download the disability process infographic here.

Disability insurance infographic - Benefits by Design