Long-Term Disability

Terms and Limits

Coverage above the NEM requires the employee to apply with medical evidence, and the insurer can approve, rate, or decline that additional amount. Carriers assess this evidence conservatively. Where there is a pre-existing condition, an ongoing investigation, or recent treatment, a decline on the amount above the NEM is a likely outcome, and it is prudent to plan on that basis.

A decline affects only the portion above the NEM. Coverage up to the NEM remains in place and is unaffected; the amount that was declined is simply not covered. For that reason a plan should be structured so the NEM covers key earners, with any amount above it understood as conditional on underwriting.

The overall maximum sets the ceiling for the highest earners: a plan that includes senior staff needs a maximum high enough to replace a meaningful share of their income, or those earners are under-insured. It works alongside the non-evidence maximum, which determines how much of the coverage is guaranteed without underwriting.

The occupation test is either own-occupation or any-occupation. Under an own-occupation test, an employee is disabled if unable to perform the essential duties of their own job. Under an any-occupation test, they must be unable to perform any job for which they are reasonably suited by education, training, or experience. Own-occupation applies to the first 24 months of the LTD claim. After that, the plan moves to the any-occupation test. The point at which the definition changes is a significant moment in a claim.

The degree of disability is either total or residual. Total disability means the employee meets the test and cannot work, and the plan pays the full benefit. Residual disability, sometimes called partial disability, applies when an employee can work in a reduced capacity and has a partial loss of earnings; the plan pays a proportional benefit rather than ending it. A residual provision supports a gradual return to work by topping up reduced earnings.

The look-back period is a window before coverage began: if the employee received treatment, consultation, or medication for the condition during it, the condition is pre-existing. The exclusion period is a window after coverage begins: if the date of disability from a pre-existing condition falls within it, the plan does not pay. Once the employee has been covered beyond the exclusion period, the condition is treated like any other.

A common form pairs a twelve-month exclusion period with a six-month look-back: a condition treated in the six months before coverage is excluded if the disability begins within the first twelve months. The clause limits exposure to conditions a group brings with it when a plan is first put in place or an employee first joins.

The mechanism is straightforward. The insurer requires the employee to apply for CPP or QPP disability. The amount awarded is deducted from the LTD payment, and the plan pays the difference. Because the employee receives the pension directly, the two sources together approach the insured benefit, so the offset lowers the insurer's share of the cost rather than the employee's total income. The Government of Canada notes that many plans reduce the benefit as soon as other disability income begins.