What is Disability Insurance and is it Necessary?
When given the opportunity, humans are perfectly capable of anticipating and planning life events like marriage, children, and retirement. Major life transitions, on the other hand, are practically impossible to imagine, much less plan for. Furthermore, every year, millions of Canadians are afflicted by dreadful illnesses and accidents, which often strike without warning.
Although most employees should have health insurance or benefits to cover the costs of catastrophic medical occurrences or ongoing care for chronic diseases such as cancer and diabetes, many do not. Disability insurance, like all types of insurance, is an ongoing expense, but certain employees may be able to get company-sponsored coverage for little or no cost. In 2016, just 45% of Canadian employees had short-term disability insurance and 35% had long-term disability insurance, according to Statistics Canada
Disability Insurance, How Does it Work?
Short-term and long-term disability insurance, often known as income security insurance, are the two types of disability insurance. What Is Disability Insurance and How Does It Work? Disability Insurance pays out when a policyholder is unable to perform any or all of their job obligations owing to a qualified medical incident or sickness. If you are unable to work for a period of weeks, months, or even years due to a significant medical issue, disability insurance will help you retain your quality of life while also alleviating the stress on your loved ones. The following is a general overview of policy terms and coverage, which differ depending on the issuer. While insurance terms and coverage differ per provider, here’s an overview of the most significant differences.
Short-Term Disability Insurance, How does it Work?
Short-term disability insurance protects employees who are temporarily unable to perform their job duties due to qualified disabilities. A one- to two-week elimination period applies to each short-term disability claim after which the policyholder is no longer entitled for compensation. The insured seeks disability insurance for a maximum of 26 weeks after the elimination date. Benefits differ depending on the program and occupation, but they typically range from 50% to 70% of prior to disability earnings. Short-term disability insurance does not cover economic damages caused by on-the-job accidents.
How does Long-Term Disability Insurance Work?
When employees are unable to execute their work duties for an extended period of time, their compensation is protected by long-term disability insurance. Short-term injury claims, for example, are subject to elimination periods. LTD elimination times are significantly longer than STD elimination times, ranging from one to six months in the majority of cases to twelve to twenty-four months in rare situations. In addition to the elimination term, each LTD policy has a two-year accruing period.
During the accumulation phase, the policyholder must amass enough accumulated impairment time to reach the elimination period. Benefits are paid until the policyholder’s disability is no longer declared or the insurance is no longer valid. Only a few LTD plans have a set period of two to ten years, while the vast majority last until the insured reaches the age of 65. Some insurance policies can be extended after the policyholder is 65 if they continue to work. Income replacement can be tailored to your unique circumstances and can be up to 70% of your previous disability earnings.