Long-Term Disability Insurance: How It Works and What’s Covered

A disability can create major problems when it comes to personal finances. While your expenses and obligations remain largely the same (or may increase if you are seeking medical treatment), your inability to work impacts your income. Long-term disability insurance is a good solution to prevent you from eroding your assets or taking on excessive debt.

How long-term disability insurance works

Long-term disability insurance is a type of insurance coverage that replaces a fixed percentage of your lost income (such as 65%), in the event that you are unable to work due to a disability that is verified by a licensed physician.

Once you receive the diagnosis from your physician, you have to go through a pre-defined waiting period that usually last 3 to 6 months. After the the waiting period, the insurance company sends out monthly payments according to your insurance policy.

During the waiting period, you can apply for and receive short-term disability benefits. Another option is the government of Canada’s employment insurance sickness benefits program.

Own occupation vs. any occupation

Long-term disability insurance can often include terminology that may be confusing to a first-time reader. One of the main considerations to look out for when reviewing an LTD policy is the ‘test’ of disability. This test stipulates that the insured person must be unable to perform the duties of his or her ‘own’ occupation or ‘any’ occupation. 

If your policy is an ‘own’ occupation policy, you get long-term disability insurance payments if you are unable to complete the requirements of your current job. Even if you can go into work, if you cannot complete the precise set of tasks for your job, you are eligible to qualify for LTD payments.

Your own occupation is not the same as your job

Note that your ‘occupation’ is not the same as your ‘job’. To qualify for long-term disability payments, the insured person must be unable to complete a similar job with a different employer within the same occupation field. Usually, the ‘own’ occupation test is applied for a period of two years (although the precise time may vary depending on the policy).

If your policy is an ‘any’ occupation policy, it means that you will only qualify for LTD payments if you are physically unable to perform any job. These policies take into account your education and professional credentials. Using these factors, the ‘any’ occupation threshold means an occupation that you are reasonably well-qualified for that constitutes ‘gainful’ employment.

In this context, gainful employment is one that provides you with at least 60% of your earnings prior to the disability. After two years (or the corresponding amount of time for your ‘own’ occupation policy), you will likely be subject to the ‘any’ occupation test to determine whether LTD payments should continue to be paid. 

Long-term disability benefits expiration

In many cases, the long-term disability benefits remain in effect until the insured person can return to work or when the insured person turns 65. Once again, policies may vary. Some insurance plans only provide LTD benefits for a period of 5, 10, 15 years, etc. It is in your best interest to understand what your specific plan includes.

What is covered under long-term disability insurance?

Long-term disability insurance policies can vary significantly from one to another. Each insurance company has a different definition for ‘disability’. However, the below list details the most critical illnesses and policies that the majority of LTD policies will cover. 

Musculoskeletal issues

Musculoskeletal issues, such as arthritis, are the cause of over a third of total long-term disability claims in North America. These conditions can cause pain, stiffness, and loss of dexterity or mobility in key joints throughout the body.

Beyond the physical impacts, musculoskeletal issues can also cause significant mental health detriments. Some common musculoskeletal conditions include:

• arthritis and osteoarthritis
• scoliosis
• fibromyalgia
• spinal stenosis
• carpal tunnel syndrome
• degenerative disc
• neck and cervical disorders.

Chronic pain

Over six million Canadians reportedly suffer from chronic pain. Chronic pain is pain that remains with the patient for a long period of time and can occur on a single body part or throughout several parts of the body.

It is also believed that chronic pain patients have some of the lowest quality of life experiences among major long-term disability conditions. Such patients regularly experience physical pain, fatigue, lower energy levels, etc., which can subsequently lead to mental health issues including depression and anxiety. Some common chronic pain conditions include chronic nerve, back and neck pain, endometriosis and fibromyalgia.

Personal injury

Personal injuries can include those caused by fractures, loss of a body organ, dismemberment, scarring, disfigurement, and other serious ailments such as a herniated disc. If you experience any of these, you are likely eligible to receive LTD payments that would cover your medical costs, lost wages, physical and emotional pain, and disability accommodations for your home or car. 

Mental health and psychological issues

Over the last few years, mental health has become an increasingly common issue in Canada, affecting hundreds of thousands of people across the country. A study by the Canadian Mental Health Association reported that 1 in 2 Canadians will suffer from some sort of mental illness by the time they reach the age of 40.

Patients suffering from mental health are often unable or significantly less able to perform daily living and working activities. Some of the most common mental health conditions covered by LTD include:

• depression
• bipolar disorder
• post traumatic stress disorder (PTSD)
• alcohol or drug addictions
• anxiety

Cardiovascular conditions:

Cardiovascular conditions impact the heart. In Canada, nearly 30% of deaths are from cardiovascular diseases. Some of the most common cardiovascular conditions covered by LTD benefits include chronic congestive heart disease, congenital heart disease, aneurysms, chronic venous insufficiency, and peripheral arterial disease.

Respiratory conditions

Respiratory conditions are diseases that affect the lungs or other parts of the respiratory system. When filing an LTD claim for respiratory conditions, long-term disability insurers will often require detailed documentation of medical evidence like pulmonary function tests that justify the severity of your illness and its detrimental impact on your day-to-day living.

Common respiratory conditions include:

• cystic fibrosis
• chronic obstructive pulmonary disease (COPD)
• asthma or chronic asthmatic bronchitis
• restrictive lung disease
• emphysema. 

Neurological disorders

Neurological disorders impact a patient’s brain and central nervous system, including the spinal cord. There are currently over 600 known neurological disorders, and symptoms can be mild or severe depending on the patient and illness.

Some disorders are more episodic, wherein symptoms are only experienced at intervals (such as seizures) while others tend to cause more serious, continuous, and adverse changes to a person’s quality of life.

The type of neurological disorder diagnosis is important as a patient can only receive LTD benefits if their disorder causes them to be totally disabled. Some common neurological disorders that are likely eligible for LTD claims include Alzheimer’s disease, Huntington’s disease, multiple sclerosis and spinal cord injuries. 

Cancer

Cancer is a life-threatening disease caused by the development of abnormal cells in the body that start to multiply in uncontrollable numbers, and infiltrate and compromise body tissue across the body. It is the second cause of death globally.

Tips to increase your chances of a successful LTD claim

There are certain steps you can take to improve your likelihood of a successful long-term disability (LTD) claim.

Keep detailed records and documentation of all your medical history

Whenever you visit a physician or other treatment provider, make sure you keep a copy of the interaction for future records. File these in chronological order if possible. Keep them easily accessible in case you need to present evidence of an underlying condition or disability that prevents you from doing your own or any occupation. 

Understand your policy

One of the main ways that people get in trouble with long-term disability insurance policies is by not reading the policy document. This document contains all necessary information, including covered conditions, the specified waiting period, and other terms and conditions regarding your eligibility. By carefully reviewing this information, you can ensure that you are best prepared to submit your LTD claim.

Stick to your treatment plan

Your physician or clinical service provider will outline a treatment plan for you at the inception of your condition or disability. It is important that you adhere to this treatment plan, as your insurance provider will review this to ensure that you used all available options to make a full recovery. Any deviations from your treatment plan can cause the insurance company to reject your claim. 

Be honest

In general, honesty is the best policy when it comes to filing long-term disability claims. When you are visiting a doctor or clinical service provider, be upfront about your symptoms.

Don’t understate anything, but don’t exaggerate your symptoms. Insurance companies sometimes hire private investigators to verify that your stated condition or disability is legitimate. This is entirely legal, as long as the private investigator respects laws, including those of trespassing on your property. 

Submit information quickly

Whether you are using a lawyer or filing a claim yourself, submit your documents quickly. The faster you can send documents when needed, the easier it will be for the insurance company to process your claim and help you.