The Difference Between Short and Long Term Disability Insurance

Short term disability insurance is designed to provide you with income replacement payments in the event you are temporarily unable to work as a result of a non-work related injury or illness. These benefits are often provided for the first several months (sometimes up to 6 months) post accident. If you do not have short term disability coverage through your employer then you may be eligible for Employment Insurance (EI) sickness benefits.

Long Term Disability Coverage

Long term disability coverage provides similar income replacement payments but for a longer, more permanent period of time. Long term disability benefits are meant to start being paid once either your short term disability benefits, sick leave from your employer or your EI benefits run out.  Keep in mind that if you sustain a work related injury then you will be required to apply for WSIB benefits. These are benefits that are specifically meant for those who are injured on the job. 

Where to Purchase your Disability Insurance

Long term disability insurance can be purchased by either yourself through your employer, by the employer itself or it can be split between the employer and employee. Depending on the circumstances there are a number of different tax implications. If the employee pays the premiums for long term disability insurance, then disability payments are not taxable. If the employer pays for the disability insurance premiums then the payments are taxable. The law is more complicated when the premiums are shared between an employee and employer.

The Definition of Disability

The definition of disability will depend on your particular insurance plan. Not all long term disability policies are the same. Many long term disability insurers use the “total disability” test.

As discussed in previous posts, in order to qualify for long term disability benefits for the first two years the claimant must be unable to perform the main duties of the job they had at the time the disability started. You may still receive benefits if you are able to work a different job but you will likely experience a reduction in your long term disability payments every month (the insurance company will get a credit for any other income you receive).

Usually after two years the disability test changes to the “any occupation” standard. It means you’ll receive long term disability benefits only if you’re unable to work at all. In other words your illness or injury will prevent you from working ANY job for which you are reasonably suited by way of training/education or experience. 

What Happens if Your Claim is Denied

Often times you may be seriously injured or ill and unable to work. If you make an application to your long term disability carrier you may be surprised to find out you are denied. You don’t necessarily have to accept the insurance company’s decision. You are within your right to appeal the insurance company’s decision or to sue them for wrongfully terminated or denying your benefits in the first place. Keep in mind the statute of limitations which is normally two years from the date of denial to file an appeal or a lawsuit. It is important that you are mindful of the denial date.