The Ultimate Guide to Long-Term Disability Insurance in Canada

Long-term disability (LTD) insurance is important for anyone in the workforce regardless of whether you work in a physically intensive job or in an office environment.

When we think about assets, our minds generally go towards a house, a car, a portfolio of securities in your registered retirement savings plan (RRSP), etc.

However, your ability to continually generate income is perhaps your greatest asset. Regular income is what makes mortgage or loan payments possible, as well as allows you to top up your investment account every once in a while. 

However, a disability can create major problems when it comes to personal finances.

While your expenses and obligations remain largely the same (or even more if you are seeking medical treatment for your disability), your inability to work impacts your salary.

For such instances, long-term disability insurance is the solution to prevent you from eroding your assets or taking on excess debt.

What is long-term disability insurance?

Long-term disability insurance is a type of insurance coverage that replaces a fixed percentage of your lost income (approximately 65%), in the event that you are unable to work due to a disability that is verified by a licensed physician.

Once you receive the diagnosis from your physician, you have to go through a pre-defined waiting period. This waiting period is the amount of time that the insured person must wait before insurance coverage kicks in. 

After the the waiting period, the insurance company sends out monthly payments according to your insurance policy.

What can I do during the waiting period?

Waiting periods generally range from three to six months. If you are dealing with a disability that prevents you from living your normal life, this waiting period can seem endless.

However, during the waiting period, you can apply for and receive short-term disability benefits from a group insurance plan provided by your employer. Another option is the government of Canada’s employment insurance sickness benefits program.

These benefits are available to you in the interim waiting period and go away once your long-term disability benefits take effect.

Long-term disability benefit timeline

Enroll in your employer’s benefits plan

If you are a full-time employee receiving employer benefits, you might have long-term disability coverage as part of your group insurance plan. As long as you are enrolled in this plan, you should be able to use long-term disability insurance if and when you need it at a later date.

Sick leave

When you are diagnosed with a critical illness by a physician and are unable, or substantially less able, to work, you can go on sick leave if you have a medical note from the physician. 

Short-term disability benefits

During the waiting period, you can apply for short-term disability benefits either through your group insurance plan or from the federal government’s employment insurance sickness benefits program. These short-term disability benefits are paid out on a monthly basis.

Long-term disability benefits

Once the waiting period has elapsed (usually between three and six months), your long-term disability benefits will replace the short-term disability benefits program you were using. 

‘Any’ occupation

A key change that occurs during the course of your long-term disability benefits coverage is that the definition of ‘disability’ now refers to a disability that prevents you from performing any occupation (not just your own previous occupation).

This change usually occurs at the two-year mark of the onset of your disability. However, policies can vary. It is important to carefully read your policy to understand the terms and conditions applicable to you. It is also important to note that a physician must confirm the same. 

Long-term disability benefits expiration

In many cases, the long-term disability benefits remain in effect until the insured person can return to work or when the insured person turns 65. Once again, policies may vary.

Some insurance plans only provide LTD benefits for a period of 5, 10, 15 years, etc. It is in your best interest to understand what your specific plan includes.

Own occupation vs. any occupation

Long-term disability insurance can often include terminology that may be confusing to a first-time reader. One of the main considerations to look out for when reviewing an LTD policy is the ‘test’ of disability. This test stipulates that the insured person must be unable to perform the duties of his or her ‘own’ occupation or ‘any’ occupation. 

If your policy is an ‘own’ occupation policy, you get long-term disability insurance payments if you are unable to complete the requirements of your current job. Even if you can go into work, if you cannot complete the precise set of tasks for your job, you are eligible to qualify for LTD payments.

Your own occupation is not the same as your job

Note that your ‘occupation’ is not the same as your ‘job’. To qualify for long-term disability payments, the insured person must be unable to complete a similar standard and class of job with a different employer within the same occupation field. Usually, the ‘own’ occupation test is applied for a period of two years (although the precise time may vary depending on the policy).

If your policy is an ‘any’ occupation policy, it doesn’t mean that you will only qualify for LTD payments if you are physically unable to perform any job. These policies take into account your education and professional credentials. Using these factors, the ‘any’ occupation threshold means an occupation that you are reasonably well-qualified for that constitutes ‘gainful’ employment.

In this context, gainful employment is one that provides you with at least 60% of your earnings prior to the disability. After two years (or the corresponding amount of time for your ‘own’ occupation policy), you will likely be subject to the ‘any’ occupation test to determine whether LTD payments should continue to be paid. 

What is covered under long-term disability insurance?

Long-term disability insurance policies can vary significantly from one to another. Each insurance company has a different definition for ‘disability’. However, the below list details the most critical illnesses and policies that the majority of LTD policies will cover. 

Musculoskeletal issues

Musculoskeletal issues, such as arthritis, are the cause of over a third of total long-term disability claims in North America. These conditions can cause pain, stiffness, and loss of dexterity or mobility in key joints throughout the body.

Beyond the physical impacts, musculoskeletal issues can also cause significant mental health detriments. Some common musculoskeletal conditions include:

• arthritis and osteoarthritis
• scoliosis
• fibromyalgia
• spinal stenosis
• carpal tunnel syndrome
• degenerative disc
• neck and cervical disorders.

Chronic pain

Over six million Canadians reportedly suffer from chronic pain. Chronic pain is pain that remains with the patient for a long period of time and can occur on a single body part or throughout several parts of the body.

It is also believed that chronic pain patients have some of the lowest quality of life experiences among major long-term disability conditions. Such patients regularly experience physical pain, fatigue, lower energy levels, etc., which can subsequently lead to mental health issues including depression and anxiety. Some common chronic pain conditions include:

• chronic nerve, back, and neck pain
• psychogenic pain
• endometriosis
• fibromyalgia
• injuries incurred due to accidents or falls.

Personal injury

Personal injuries can include those caused by fractures, loss of a body organ, dismemberment, scarring, disfigurement, and other serious ailments such as a herniated disc. If you experience any of these, you are likely eligible to receive LTD payments that would cover your medical costs, lost wages, physical and emotional pain, and disability accommodations for your home or car. 

Mental health and psychological issues

Over the last few years, mental health has become an increasingly common issue in Canada, affecting hundreds of thousands of people across the country. A study by the Canadian Mental Health Association reported that 1 in 2 Canadians will suffer from some sort of mental illness by the time they reach the age of 40.

Patients suffering from mental health are often unable or significantly less able to perform daily living and working activities. Some of the most common mental health conditions covered by LTD include:

• intellectual disabilities
• depression
• bipolar disorder
• post traumatic stress disorder (PTSD)
• alcohol or drug addictions
• anxiety.

Cardiovascular conditions:

Cardiovascular conditions impact the heart. They are caused by fat deposits, inflammatory cells, or the buildup of plaque in the arteries.

These then cause blockages in the bloodstream, preventing the delivery of oxygen to the heart. In Canada, nearly 30% of deaths are from cardiovascular diseases.

Some of the most common cardiovascular conditions covered by LTD benefits include:

• chronic congestive heart disease
• congenital heart disease
• aneurysms
• chronic venous insufficiency
• peripheral arterial disease.

Respiratory conditions:

Respiratory conditions are diseases that affect the lungs or other parts of the respiratory system. These diseases can be caused by smoking, air pollution, asbestos, or radon, among other causes.

When filing an LTD claim for respiratory conditions, long-term disability insurers will often require detailed documentation of medical evidence like pulmonary function tests that justify the severity of your illness and its detrimental impact on your day-to-day living.

Common respiratory conditions include:

• cystic fibrosis
• chronic obstructive pulmonary disease (COPD)
• asthma or chronic asthmatic bronchitis
• restrictive lung disease
• emphysema. 

Neurological disorders

Neurological disorders impact a patient’s brain and central nervous system, including the spinal cord. There are currently over 600 known neurological disorders, and symptoms can be mild or severe depending on the patient and illness.

Some disorders are more episodic, wherein symptoms are only experienced at intervals (such as seizures) while others tend to cause more serious, continuous, and adverse changes to a person’s quality of life.

The type of neurological disorder diagnosis is important as a patient can only receive LTD benefits if their disorder causes them to be totally disabled. Some common neurological disorders that are likely eligible for LTD claims include:

• Alzheimer’s disease
• Huntington’s disease
• dementia
• epilepsy
• multiple sclerosis
• Parkinson’s disease
• stroke
• cerebral palsy
• brain tumours
• traumatic brain injuries
• spinal cord injuries. 

Cancer

Cancer is a life-threatening disease caused by the development of abnormal cells in the body that start to multiply in uncontrollable numbers, and infiltrate and compromise body tissue across the body. It is the second cause of death globally.

The four main types of cancer include:

• carcinomas (the most common type of cancer that includes prostate cancer, breast cancer, lung cancer, and colorectal cancer)
• sarcomas (cancer that develops in fat, muscles, nerves, tendons, joints, blood vessels, lymph vessels, and cartilage before spreading across other parts of the body
• leukemia (cancer of the blood)
• lymphoma (cancer beginning in the lymphatic system).

Difference between critical illness insurance and long-term disability benefits insurance

Another component of most employers’ benefits packages is critical illness insurance. While both critical illness insurance and long-term disability benefits insurance protect your financial future, there are some fundamental differences between the two. 

Critical illness insurance is a one-time, lump-sum payment provided to the patient, in which the patient has complete discretion over how they want to use the funds.

Critical illness insurance covers medical treatment costs. On the other hand, long-term disability benefits insurance replaces your salary when you are unable to work. In general, LTD insurance replaces 60% to 65% (and up to 75% in some cases) of lost salary.

Key differences between the insurances

Utilization of funds

Disability insurance is used to help you maintain a certain standard and quality of life on an ongoing basis even if you are not able to work anymore. On the other hand, critical illness insurance can be used to cover the costs of treatments, medications, private hospital rooms or nurses, etc.

Payout timeline

The waiting period for disability insurance varies from a month to up to six months depending on the policy. Most policies have a 90-day waiting period.

On the other hand, the waiting period for critical illness insurance is much shorter. Funds are usually disbursed at approximately the 30-day mark.

Eligibility for application

Only people that are employed can apply for long-term disability insurance, as the insurance is intended to offer benefits contingent upon a specific salary. In contrast, anyone can apply for critical illness insurance as long as they are listed as a covered individual under the policyholder’s plan.

Differences between life insurance and long-term disability benefits insurance

Life insurance is a policy in which the life insurance company pays out a benefit to your listed beneficiaries in the event of your death. This is a lump-sum benefit paid out on a tax-free basis to your family, as long as your insurance policy is valid and the death met the terms of the policy.

Long-term disability benefits insurance provides a steady stream of income to replace your lost salary. It is paid to you on an ongoing basis until you turn 65, or until you are able to return to work. 

Tips to increase your chances of a successful LTD claim

There are certain steps you can take to improve your likelihood of a successful long-term disability (LTD) claim.

Keep detailed records and documentation of all your medical history

Whenever you visit a physician or other treatment provider, make sure you keep a copy of the interaction for future records. File these in chronological order if possible. Keep them easily accessible in case you need to present evidence of an underlying condition or disability that prevents you from doing your own or any occupation. 

Understand your policy

One of the main ways that people get in trouble with long-term disability insurance policies is by not reading the policy document. This document contains all necessary information, including covered conditions, the specified waiting period, and other terms and conditions regarding your eligibility. By carefully reviewing this information, you can ensure that you are best prepared to submit your LTD claim.

Stick to your treatment plan

Your physician or clinical service provider will outline a treatment plan for you at the inception of your condition or disability. It is important that you adhere to this treatment plan, as your insurance provider will review this to ensure that you used all available options to make a full recovery. Any deviations from your treatment plan can cause the insurance company to reject your claim. 

Track your symptoms

Even if you are on a treatment plan, it is important to keep track of your symptoms over time. Keep a journal handy so you can easily pull up the precise dates of symptoms and treatments and explain how you felt or what you experienced.

Be honest

In general, honesty is the best policy when it comes to filing long-term disability claims. When you are visiting a doctor or clinical service provider, be upfront about your symptoms.

Don’t understate anything, but don’t exaggerate your symptoms. Insurance companies sometimes hire private investigators to verify that your stated condition or disability is legitimate. This is entirely legal, as long as the private investigator respects laws, including those of trespassing on your property. 

Submit information quickly

Whether you are using a lawyer or filing a claim yourself, submit your documents quickly. The faster you can send documents when needed, the easier it will be for the insurance company to process your claim and help you.

Frequently asked questions about long-term disability insurance