How Does Group Disability Insurance Work
If an employee is too sick or hurt to work, they may be eligible for disability insurance. After filing a claim and meeting the policys definition of disability, the employee then fulfills the elimination period . Examples of elimination periods include 8 days for short-term disability and 90 days for long-term disability. Depending on the employers time-off policy, employees may be able to use sick leave during the elimination period.
Its important that employees understand disability insurance covers a portion of their incomereferred to the benefit percentage. This is the percentage of pre-disability income the employee receives .
For short-term disability, claimants receive weekly benefit checks. For long-term disability, claimants receive monthly payments.
How Elimination Periods Work
The way an insurance elimination period works depends on the type of insurance policy it applies to: long-term care, short-term disability, or long-term disability.
- Long-term care insurance: Whatever elimination period you choose is the amount of time you will be responsible for paying for long-term care costs. For example, with a 90-day elimination period, if you entered a nursing home, you would have to pay for all care you receive for the first 90 days.
- Short-term disability and long-term disability insurance: Short-term and long-term disability payments also begin after your elimination period is over. The elimination period runs concurrently with any accrued time off, sick leave, or other types of compensatory leave pay. Your leave must be exhausted before short-term disability payments begin.
You may be able to lower the cost of your insurance policy by choosing a longer elimination period. However, you should keep in mind that you will have to pay medical expenses for a longer period before coverage begins.
Out-of-pocket costs are an important consideration when purchasing insurance. Remember that the longer the elimination period is, the cheaper the cost of your insurance policy. Youll have to determine whether the savings of a longer elimination period is worth the increased out-of-pocket expenses youll have to pay.
What Is An Elimination Period For Long Term Disability Insurance
5 minute read
Disability insurance is complicated. To make sure you get the best disability insurance policy its essential to fully understand whats included in your policy. That being said, when doing research on disability insurance there are many phrases that come up again and again.
One phrase you might notice is the term: ELIMINATION PERIOD.
So what is an elimination period anyways?
To put it simply, the elimination period is how long you must be injured, ill, or disabled before you begin to receive your policy. All long-term disability insurance policies have an elimination or waiting period to receive the benefit.
The most common elimination period is 90 days, but it can range from about 60 days to 365 days. This elimination period is one of the main differentiators between long and short term disability insurance.
This waiting period means that you must be disabled for the specified length of time before the policy will begin paying your benefit.
If you choose a shorter elimination period, it will increase the cost of the policy. This feature on your policy is a personal choice and is different for everyone. But if youre more open to some risk, choosing a longer elimination period is one way to save some money on your premiums.
There are a few key pieces of information that are helpful to know when it comes to elimination periods.
Pre-existing Conditions
Multiple Claims
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Elimination Periods And Long
Before buying LTC insurance, make sure you know the terms of the elimination period. Most policies require policyholders to need consecutive days of services or disability.
For example, if your elimination period was 90 days, you would need to be in a hospital or disabled for 90 consecutive days before any coverage begins. Accumulating 90 days in total over a specified period of time would not qualify you for coverage.
What Is The Elimination Period
Again, the majority of disability insurance policies in Canada will come with an elimination period. It is sometimes referred to as a waiting, qualifying, or deductible period. The period begins when the employee is injured. It ends when the employee is eligible to receive disability benefits. The period will range depending on whether youre working with short-term or long-term claims. With a short-term claim, the period will be much shorter. It may last less than a day or a week or longer.
Long-term claims have a much longer elimination period. With a long-term claim, you can expect the elimination period to last 90 days. Depending on the policy though, it may be longer or shorter. If youre receiving short-term benefits from the same insurer, the long-term elimination period will likely be the same length of time that the employee is sick or short-term benefits run.
Just remember that the duration can vary from one plan to another. Before your short-term period expires, youll want to go ahead and file a claim for long-term benefits. This will ensure that you do not have to wait for benefits after the short-term benefits end.
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Are Disability Claims A Taxable Benefit
This an extremely common question and is one that can seem daunting to consider. For the majority of benefits, taxation is straight forward but there are variations when it comes to disability.
The main difference is clear when we compare employee-paid vs employer-paid premiums. In the case of disability premiums, if the employer pays even one cent of the disability premium it becomes a taxable benefit to the employee, should they begin receiving the benefit. When the employee pays 100% of the disability premium, the benefit is non-taxable to them upon commencement of the benefit. See our previous beyond benefits issue to learn more about benefit taxation.
The Period Of Time Between An Injury/illness/disability Or Claim And The Ultimate Receipt Of Benefit Payments
An elimination period is usually associated with long-term care insurance and disability insurance, it is often referred to as a “waiting” period or “qualifying” period, and in some insurance policies, the elimination period serves as the deductible. The insured must pay for LTC before benefits will start paying from their policy. It is frequently thought of as a deductible.
The most common elimination period is 90-days, but they may be anywhere from 30 to 365 days. In addition, the inverse relationship between the premium and the elimination period can be significant. The shorter the elimination period, the higher the premium, and vice versa. The differences can be dramatic, especially in the case of LTC insurance, and it is important for the policy holder to consider their ability to pay for care during those stated periods.
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Now You Know Why The Disability Insurance Elimination Period Is Important To Understand
We hope you learned what the disability insurance elimination period is and why it is important to understand. To recap:
- Most people mix up the definition with waiting periods on other types of insurance. The waiting period on disability insurance is completely different compared to other types of insurance.
- Carriers have different definitions themselves.
- You can save money if you know how the disability insurance elimination period works.
Would you like our assistance or have questions? Feel free to contact us or use the form below. We are happy to review any policies you have or discuss your situation.
Unlike other agencies, we have your best interests first. There is no risk of contacting us. If we cant help you, we will point you in the right direction as best we can.
Savings Example Of Disability Insurance Waiting Period
If you want to see how much short-term disability insurance costs, just review our disability insurance guide for truck drivers or dental hygienists. We include examples there.
Below are two example premiums for a disability insurance plan with a 30-day elimination period and a 90-day elimination period.
I assume a 30-year-old woman, accountant, in good health, making $100,000. Here is a 30-day elimination period:
You can see a 5-year benefit period costs almost $150 per month.
What about a 90-day elimination period?
Wow. The same 5-year benefit period on a 90-day-waiting period costs $77.40 per month. Almost half!
So, you have to determine if it is worth spending an extra $72.55 per month to get your money 60 days sooner.
Look at it this way. In 35 years, she will have spent an extra $30,000 or so for the 30-day-elimination period.
That is no big deal, John,you say.
What if I told you, that if you invested that same $72.55 each month, over 35 years, you will have potentially saved $170,000 by age 65?Thats the point I am making. I wouldnt recommend a waiting period of greater than 90 days, unless you have significant savings. However, you are giving up a lot of potential savings if you want a 30-day waiting period.
This also underscores the point about short-term disability insurance. You really dont need it. You need to have 3 months of household expenses covered through an adequate emergency savings fund.
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Dealing With Elimination Periods For Short And Long
It is estimated that roughly 22% of the Canadian population 15 years and older have one or more disabilities. As someone gets older, their risk of becoming disabled is increased significantly. As a Canadian business owner, it is pertinent to prepare for potential problems. One way to do that is by acquiring and maintaining disability insurance. However, insurance owners should understand that this type of insurance is not straightforward. Most policies will come with an elimination period. Within this guide, youll learn more about the insurance policys elimination period.
Figuring How Much Long
Before purchasing long-term disability insurance, determine how much income you need to meet critical financial obligations such as rent/mortgage, food, fuel/transportation, utilities, etc. An easy way to do this is by adding up your monthly expenses and then comparing them with the income from any existing disability coverage, plus any income from other sources, such as personal savings.
A disability can also bring with it increased or additional expenses like health care costs, assistance with daily activities, even home modifications. Keep this in mind while evaluating the amount of coverage you could need.
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Elimination Period Vs Probationary Period
A policyâs elimination period is not the same as a probationary period.
A probationary period is a length of time between when the policy is issued and when you can file a claim for benefits. Itâs a period of time designed to protect the insurance company from fraudulent claims. Probationary periods may be 15 days or longer.
During the policyâs probationary period, you cannot file a claim with the company, even if your application is approved and your disability is legitimate. Once youâre notified that the probationary period is over, you can file a claim if needed.
With an elimination period, you can file a claim, but you wonât receive benefits until the period has expired.
Tap Into Your Retirement Account
Dipping into funds in your retirement account is not an ideal situation, especially if youre nowhere near retirement age. But, in an emergency, it is an option.
If youre in your 30s, 40s, or 50s, treat this option as an absolute last resort. Not only will you be dwindling down the money youll need in retirement, but youll pay penalties for early withdrawal.
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Which Elimination Period Is Right For Me
It depends how long you can support yourself without an income. Remember, the shorter the elimination period, the more youll pay in premiums.
The key is choosing an elimination period that aligns with the premium you can afford. To do the math, consider how much money you have in savings, and whether or not youll have new financial obligations in the future, like a mortgage or baby.
Lets say you have enough savings to cover a years worth of living expenses. You could cut down your disability premium by choosing a longer elimination period, like 180 or 365 days. If your spouse is the breadwinner and could support you both, you could stretch out the elimination period longer.
But if you dont have an emergency fund to fall back on, you might want a shorter waiting period.
Reasons Youll Be Denied
Since you never know if your insurance company is going to grant your request, you should apply early. Furthermore, you should understand the potential reasons why your insurance company may deny your claim. One of the main reasons theyll deny your claim is a change in the definition of disability. Or, the insurer may believe that your case does not meet the definition.
Other reasons include insufficient medical information, failure to receive medical care, misrepresentation on the application, non-compliance with treatment, pre-existing medical conditions, or surveillance. If you receive a denial letter, you should not stop. You always have the option of appealing. Appealing their decision may feel like an uphill battle but you can help. You should file a claim and provide the insurer with new medical information.
Make sure that youre truthful on the claim and provide the latest information about your disability. With a little luck, youll be able to convince the company to grant your request.
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Short Term Disability Vs Long Term Disability Elimination Periods
Elimination periods vary depending on whether you seek short term disability or long term disability coverage.
Short term disability insurance policies have shorter elimination periods. Most policies have a waiting period of 0-90 days once youve qualified and proven that you are eligible to receive disability benefits. To do so, youll need to meet the definition of disability as specified in your policy.
Long term disability insurance policies usually have longer elimination periods. In some cases, they can be as long as two years. In addition, most policies stipulate that the policyholder has to be disabled every day of the period to qualify.
Some people have their own disability insurance policy in addition to one offered by an employer. In this case, you may be able to collect some short term benefits during the elimination period of your long term policy. But it all depends on the insurer and the policy.
How Does The Elimination Period Affect A Disability Insurance Policy
For some, a longer disability policy elimination period is not worth much. For instance, a two-year elimination period means you receive no benefit payments for two years after you are disabled. Many individuals do not have this amount of money set aside in regular savings, creating the need to go into debt or come up with another solution to afford their monthly required expenses. While the premium cost for a longer elimination period is lower, it may not be worthwhile unless you are in a great financial situation.
Also, it is important to note that insurance companies may offer different elimination periods for different disabilities. A severe disability or permanent disability may have a shorter elimination period than less serious sicknesses or injuries. It is necessary to review the elimination period provisions of a policy before accepting.
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Why You Should File Your Ltd Claim As Soon As Possible
An employee who is still unable to work after their short-term disability period should immediately apply for LTD benefits. Many people mistakenly believe their short-term disability will roll into long-term disability however, this is not true, and most insurers require a separate application for LTD benefits. To avoid any gap in receiving disability payments, it is important to file for LTD as soon as possible, especially since there may be a deadline for submitting the initial claim.
How Do Earnings From Rehabilitation Employment Affect My Disability Benefits
Normally, your monthly disability benefits will be offset by earnings you receive from other sources only to the point where your total income while working, together with any benefits you are receiving under the Disability Insurance Plan, exceeds the insured salary on which your benefit was based. In other words during rehabilitative employment you can earn up to 100% of your pre-disability salary.
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What Is The Disability Insurance Plan
The Disability Insurance Plan provides a monthly income benefit for employees who are unable to work for a lengthy period of time due to a totally disabling illness or injury which is non-work related. Benefits are paid subject to a 13 week elimination period or the exhaustion of sick leave, whichever is later.
The Plan is administered by Sun Life, hereafter referred to as the Insurer.
A Board of Management for the DI Plan has been established under the National Joint Council . The Board membership includes a chairperson appointed by the NJC, four employer side, and four bargaining agent side representatives.
The Board is responsible for considering and making recommendations to the NJC on appeals or disputed claims and membership issues matters related to the financial integrity of the Plan eligibility rules Plan design and premium rates.
The complete terms and conditions of the Plan are set out in a contract of insurance between the Treasury Board, represented by the President of the Treasury Board, and the Insurer. In situations where there is conflict between this booklet and the insurance contract, the terms of the contract shall prevail.
Are My Benefits Affected By Changes In The Cost Of Living
Your net benefit will be increased in relation to the cost of living, up to a maximum of 3 per cent.
For example, if the cost of living were to rise by 2 per cent, your net monthly Disability Insurance benefit of $1,125 would be increased by 2 per cent on the January 1 following the effective commencement date of your benefits to become $1,147.50. If the cost of living were to rise by more than 3 per cent per year, your net monthly DI benefit of $1,125 would be increased by 3 per cent on the January 1 following the effective commencement date of your benefits, to become $1,158.75. See example above.
At the same time, your PSSA and CPP or QPP benefits would also be increased in relation to the rise in the cost of living. No matter what level of increase you receive under those plans, that increase would not be included in the offset against your DI benefits. You would receive the full benefit of escalation under the other plans.
On January 1 of each subsequent year, your DI benefit would be adjusted by further increases in the cost of living to a maximum of 3 per cent. Again, you would receive the full cost of living increase in your PSSA and CPP or QPP benefits without offset.
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