Once we are no longer “dependent”, income is the foundation of the lifestyle not just for the “now” but for the future. That’s one of the main reasons we work—to provide for the things we need and want. (Personal fulfillment, engagement, etc. are the subjects of other blogs.) Disability is the fundamental insurance to protect the ability to earn, to cover off the “risk” of no longer being able to work—to make a living.
The average working Canadian seldom purchases individual disability coverage that is not linked to a mortgage or a loan. Therefore, their reliance on an employer-sponsored group disability program is paramount.
Consider your best employee.
While we know many believe “it will never happen to me” but what if it does? If the most productive, well-respected employee becomes disabled, and they have no access to individual insurance and none is available under the group benefit plan, how will they maintain their household and pay expenses? While that may not be the business owner’s problem (to be blunt), remember this is their BEST employee.
Question: Does your benefits package align with YOUR business strategy, productivity expectations, culture, and compensation? Then disability coverage should form a part of that offering.
The employee say they have coverage through their spouse’s plan.
Many employees may have spousal coverage for health and dental options, (which allows them to waive the health and dental through their own employer’s plan) they will not have disability insurance that is tied to their own wages and their own occupation through that spousal plan. In the same manner that an employer can’t protect someone else’s income (they are not employed by them) through their insurance, so too, is it true for your employee’s spousal plans.
When a new employee is hired, whether they are waiving the health and dental due to coverage under a spousal plan, does not permit waiving the disability coverage under their existing employer’s policy.
Actively-at-work, full-time staff.
How a contract policy is defined matters. If the disability coverage is for actively-at-work, full-time employees, working more than, say 24-hours a week, then adherence to the policy provisions is a must. Claim trouble can occur if an employer defines a staff member as “part-time” even if they do work more than 24-hours on average, and put them on for disability coverage, when they should have been excluded. This may result in a declined disability claim.
Employers who extend disability coverage for employees who have been terminated as part of a severance package that was not pre-approved by the insurance provider may run into unforeseen issues in the event of a claim as the employee will likely not be approved due to not being “actively at work”. Some benefit provisions can be extended on an approved severance; however, disability is not on this list.
A warning for the business owner
By definition, the disability is protection of declared T4 income. We often classify business owners into their own category to avoid them being on the group LTD plan. If a business owner opts to be included in the group disability coverage (we recommend against this) they run the risk of paying premiums for coverage that will never be paid in the event of a disability claim.
Typically, if a business owner becomes disabled, their income doesn’t cease. They will usually be able to continue to draw from the business, even if they have to wind it down as a result of the disability. When an owner is able to continue to earn from the business as an entity, then there is nothing to “protect”.
We recommend business owners to work with a respected financial planner for their individual and unique insurance needs.
This too would apply to members of the organization who may have their own professional corporations, like in accounting and legal firms. Those who are considered a contractor—not a contracted employee who are, according to Canada Revenue Agency (CRA) their own business entity. (Always consult a lawyer or accountant for guidance in these areas.)
Updates to the insurer
It is important that plan administrators report via the on-line administration portal any earning updates to the insurance provider. They will have no way of knowing if a staff member has received an increase or perhaps reduced their hours and hence the wage goes down unless it is reported. Reporting is so very important because it will adjust their amount of coverage available to them via the disability in the event of a claim.
Consider an employee who may be on the benefit plan for $2,780 of monthly disability coverage ($50,000 annually) because of the initial earnings reported when the plan started. Since that time, the employee’s wage has increase to the point where they may be entitled to $4,000 of disability. Now, they have made a claim, and their salary was never updated, and they will be limited to $2,780 a month. That may prove to be a severe impairment to their quality of life living with a disability.
Other changes which may impact coverage includes hours worked, job classifications, and non-medical work absences.
Medical Questionnaire
A disability program will often include an overall maximum, like $5,000 or $10,000, perhaps even $20,000 which the employees would be entitled to according to the reported wage. However, often overlooked is the Non-evidence Maximum (NEM). The non-evidence maximum is the amount used by the insurer for all staff qualifying for coverage who have not completed a medical questionnaire proving good health. This NEM—the maximum amount of insurance the insurer is willing to risk regardless of any pre-existing health conditions—may be as low as $1,000 or match the overall maximum but will usually fall somewhere in between. Employees need to be provided with the opportunity to complete a medical form. Otherwise, they may be limited their eligible amount of coverage in the event of a claim. (This can become an employer liability as well, if the employees were not made aware of the provision and provided with the access.)
Obtaining the overall maximum coverage to align with the employee’s wage will not take effect until medical underwriting has been completed and approved by the insurance carrier.
Pre-existing Conditions
A pre-existing condition may be an ailment which impacted an employee prior to being hired. Usually, if an employee had been on a disability claim within 90-days of being hired, they would be ineligible to file a disability claim within the first year of employment. This serves to prevent someone seeking employment for the purposes of filing a disability and for a company to enact a disability policy for the purposes of accommodating a known disability claim.
All-source maximum
The total compensation received while on a disability claim has to adhere to federal guidelines. This means a person cannot receive more compensation while on disability than they would while gainfully employed. This income can include investments, rental, workers compensation, or other sources of passive income. The maximum will be 85% of pre-disability basic earnings after income tax.
Communication
On-going, active communication is key to an effective benefit plan that will align with safety and productivity, as well as compensation and organizational culture.
We’d be pleased to engage in a meaningful conversation. Give us a call.
Note: this was written without the aid of Artificial Intelligence (AI)
Disclaimer: Please note that the information provided, while authoritative, is not guaranteed for accuracy and legality. The site is read by a world-wide audience and employment, taxation, legal vary accordingly. Please seek legal, accounting and human resources counsel from qualified professionals to make certain your legal/accounting/compliance interpretation and decisions are correct for your location. This information is for guidance, ideas, and assistance.
