Potential Gaps in your Long Term Disability (LTD) Group Benefits Plan
Posted In: Employee Benefits Planning

1. Length of Coverage:

The key in designing a group benefits plan is to help you understand and allow access to the full amount of coverage that you need and pay for. Though long-term disability (LTD) is extremely valuable, the insurance may have constraints, such as, you may be able to claim LTD for your “own occupation” for only two years.  After this point, if the employee can perform “any occupation” within the company (or another company), they could be “off benefit” (determined by the insurance company). Knowing these constraints, your employees may want to obtain additional private LTD insurance to cover their “own occupation” until they are 65 (retirement age).

2. Amount of Coverage:

Another fundamental characteristic of LTD and short-term disability (STD) insurance is the volume of income you are insured for compared to what you currently earn. Let’s say you earn $60,000 a year, that is $5,000 per month (pre-tax). A non-evidence maximum (NEM) is what you qualify for without providing health evidence. Often, this is not enough. Your plan can cover more if you provide “Evidence of Insurability” (EOI). EOI is a simple health questionnaire to help cover employees for their true income, up to the “max” allowed on the plan.

Elementus repeatedly designs plans so that the NEM equals the maximum coverage available (MAX), in order to prevent gaps and protect the employer. Otherwise the employer must prove they provided the EOI form and educated their employees of the potential gap in coverage. We reassess your plan (each year) to apply for an increase to both the NEM and the MAX (keeping them equal) as a way to capture higher income earners salaries.

3. Tiered vs. Flat LTD:

It is critical that the company is not paying for a benefit that the employee will not be able to claim. The term “all-source maximum” is a limit to what an employee can earn on LTD, in order to encourage them to return to work when able. For higher income earners, the all-source maximum can create a gap between the LTD insurance coverage they are paying for with what they could actually claim.

Instead of having a flat percentage coverage (ex. 66.67%), we can design a tiered plan.  For higher income earners, this will reflect what they will be able to claim more accurately, if on long-term disability.

See the graph below from Great-West Life; it illustrates the gap caused by the all-source maximum and flat LTD coverage.

4. Waiting Period Change:

On Jan 1, 2017, the government made a change to the EI waiting period.  Group LTD plans that had 120 waiting period need to be updated to 112 days, in order to reflect this change.

Talk to us today about your benefits plan, we will make sure it suits the needs of your team and their dependents. At Elementus, we act in your best interests, representing and negotiating for you with a variety of insurance providers.  Our priority is to make sure you get the best return on your investment.

Written by:

Jeff Devlin | Certified Financial Planner, Director


E & OE

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