Aaxel Insurance Brokers Ltd.

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An extended illness or injury can create a significant financial hardship. Although employees will often express a greater demand for more visible benefits, a Long-term Disability benefit is far more important in protecting the financial well-being of employees. Very few employees will ever be forced to sell their homes because they need eyeglasses or dental work. However, a loss of income can have much more serious repercussions. The main design features of a Long-Term Disability plan are described below. Elimination Period The elimination or waiting period is the period of time that the claimant must be disabled before receiving benefits. The most common elimination period is 17 weeks so that the LTD benefit integrates with the Employment Insurance (EI) plan. However, the elimination period may be as short as 3 months and as long as one year. The length of the elimination period has a direct impact on the LTD premium as a longer elimination period will result in fewer claims. For plans that include a Short Term Disability benefit, the Long Term Disability plan is designed so that the elimination period ends and benefits begin as soon as Short Term Disability benefits cease. Benefit Schedule The benefit schedule is generally based on a percentage of the employee's pre-disability gross earnings. When determining an appropriate benefit schedule, the tax status of the LTD benefit must be considered. Unless the plan member is paying the entire LTD premium, the benefit will be taxable when received. An LTD plan which is taxable should be based on a higher percentage of the employee's pre-disability gross earnings than a plan that is non-taxable. A taxable LTD plan will often be based on a schedule as high as 75% of pre-disability gross earnings whereas a non-taxable plan will generally not exceed 67%. When determining an appropriate benefit schedule, it is also important to consider the plan's "All Source Maximum". The purpose of the all source maximum is to prevent situations in which an employee's total income (from all sources), while disabled, comes too close or exceeds his/her pre-disability earnings effectively eliminating the financial incentive for the employee returning to work. Based on the all source maximum definition, the LTD benefit payable will include all direct offsets (WSIB benefits and CPP/QPP disability and retirement benefits) and indirect offsets (automobile insurance plan benefits, group or association insurance plans benefits, retirement or pension plan benefits, etc.). Therefore, when calculating the benefit a disabled employee is eligible for, income from the following sources will be included under the all source definition: Workplace Safety and Insurance Board benefits, Canada or Quebec Pension Plan disability and retirement benefits, automobile insurance plan benefits, group or association insurance plans benefits, retirement or pension plan benefits, earnings or payments from any employer, self-employment income, and earnings from any government plan excluding Employment Insurance benefits. When the total income received exceeds the all source maximum, the benefit payable is reduced by the excess amount.

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