Short Term Disability Insurance Benefits Plan Sponsors and Employees

Sep 11, 2018

survival-3580200_1280Expect the unexpected. It’s an idea the insurance industry is built on. The unexpected in this case is usually not good news. No one is winning the lottery here. So, most of us understand the need to plan for a down side, and the concept of life insurance is reasonably self-explanatory.

Similarly, we know the broad-brush strokes of Long Term Disability (LTD) insurance. We hear the term and think catastrophic accident or life changing diagnosis. We rest easier if we know we’re covered against such disaster. The hitch is that LTD doesn’t kick in until about 17 weeks. Four months is a long time when you’re in a crisis and don’t have an income. This is where STD comes in, but not always. Let’s look at some examples.

Jack, an employee at the Acme Company, was seriously injured in a (non-work related) car accident. His employer covered his pay cheque for the first few weeks and provides LTD as part of his benefits package if he doesn’t recover and is unable to return to work. But for Jack, that pesky problem of the 17 week wait is no longer academic. Fortunately, there is a federal disability program called EI Sickness Benefits that can help with the shortfall. The benefit maximum is 55 per cent of average insurable earnings, to a weekly maximum of $547 (in 2018) per week for 15 weeks, calculated on the maximum salary of $51,700. This fits snugly between Jack’s employer’s sick day plan and LTD. It also closely approximates his salary of $52,000 a year.

This EI Sickness Benefits program provides meaningful coverage for Jack and many other Canadians. However, for Shelley, who also works at Acme and was also injured, it results in a significant financial shortfall as her salary is much higher than the EI cap. To properly insure her income, her employer offers an STD which provides payments of up to 75 per cent of her pre-disability earnings. 

For employers, the cost of offering STD is fairly high because of the higher frequency of claims. But, this can be offset by a proportional EI premium reduction when an STD plan is in place. Another advantage for employers is active disability management by the same insurance carrier who manages the LTD. The significance here is that statistics consistently show the longer a plan member is disabled, the less likely they are to ever return to work. This means that fast tracking or streamlining the disability management process can mean a more successful and possibly earlier return to work.

Both the STD and the EI Sickness Benefits programs offer significant benefit for our two employees who met the unexpected. A degree of financial security is provided by the seamless income from features of each program: sick pay to STD/EI to LTD, if necessary. Also, their employers gain much needed flexibility in supporting their diverse workforce with a choice of programs. Money can’t buy happiness, but in a world where the unexpected often happens, it can buy some peace of mind.

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