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Long Term Disability Coverage FAQ's

I am a new employee and am not familiar with Long Term Disability (LTD) protection. What is the purpose of LTD coverage?

LTD coverage provides members with a financial safety net. The coverage provides you with income and pension plan protection if you are absent from work for long periods of time as a result of illness or injury. The plan reduces the financial vulnerability most members face when confronted with a loss of income during a lengthy illness or injury.

I am in good health and physically fit. I believe LTD coverage is expensive and I am questioning the need to purchase the benefit. Why should I enroll in an LTD plan?

The purpose of LTD coverage is to replace lost income due to disability in order to protect the lifestyle you have built for yourself and/or your family.

LTD premiums are based on plan design and utilization. Although the number of people who apply for LTD benefits is relatively low, the claims normally have a high dollar value.

Here are some points to consider:

  • 1 in 3 Canadians will develop some form of life threatening cancer
  • 1 in 2 Canadians will suffer from heart disease
  • 95 percent of heart attack victims and 75 percent of people who experience a stroke, and survive the initial event are left with some form of disability
  • The average duration of an LTD claim is greater than 3 years

If you are questioning the value of membership in the LTD Plan, ask yourself two questions:

1. If you became ill, could not work, and knew Short Term Illness (STI) benefits would be exhausted before you were able to return to work, could you maintain your home and meet your financial obligations without your present salary?

2. If you were disabled and unable to work, would you be prepared to accept a lower pension because you could not make contributions to your pension plan?

Answering "No" to either question one or two illustrates the benefits of an LTD Plan.

Why is enrolment in the LTD plan mandatory?

LTD coverage is a critical component in group insurance plans.

Group coverage is designed to lower the cost of insurance to plan members by spreading the risk and costs of claims over a large number of average healthy people. The more people in the work group, the greater the revenue pool available to pay claims. By balancing the demographics of a group against the risk of illness, or disability, insurers create long term disability plans that provide optimal pricing for the insurance desired by the group.

Mandatory LTD plans are based upon full work group participation. This ensures the membership base is sufficient and suitably stable to sustain the benefits and services supplied by the plan. The combination of adequate numbers and stability maintains a balance between risk and revenue.

In LTD plans where membership is optional, group size tends to be lower and the number of members fluctuate as people opt in and out of the plan. Some people, especially younger employees, decline membership because they believe they are not at risk of becoming disabled. Others opt out of the plan for financial or personal reasons. Membership in the plan becomes less stable, and more risk is focused upon a declining number of older members. As a result, the cost of premiums must increase to maintain the benefits.

Regardless of the type of plan, disability is unpredictable. Serious illness may attack the most health conscious members, and even the most cautious people may suffer a disabling accident. Although it is impossible to predict the potential for a disabling event, we know that: 

  • 7 out of 10 people between the ages of 35 and 65 will become disabled for 3 months, or longer.
  • 1 out of 7 employees will be disabled for 5 years, or more, before reaching retirement.
  • At age 32, a disability of 3 months, or longer, is 6 times more likely than death.
  • In recent years, 6 in every 10 claims submitted for Canada Pension Plan disability benefits are initially refused.

The risk of disability is real. Disability can strike at any age, and any time. Mandatory plans ensure all members in the work group receive adequate income and pension plan protection in the event of an illness or disabling accident.

Everyone in the group deserves to enjoy the comfort and security of a financial safety net.

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