Life and Disability Coverage
These are the lines almost nobody reads until someone needs them, and the lines where an uncovered gap does the most damage. They are also where the single most valuable piece of free advice in group benefits lives.
The terms
Volume
The total amount of insurance in force on a line, in dollars. Life and AD&D are quoted per $1,000 of monthly volume; long-term disability per $100 of monthly covered earnings.
Salaries are not optional detail on these lines — they are the rating basis. Without them no insurer can produce a life or LTD number at all.
Benefit formula
How the amount is derived — a flat amount for everyone, a salary multiple such as one or two times annual earnings, or a schedule varying by class of employee.
A salary multiple keeps coverage current as pay rises but interacts with the non-evidence maximum. A flat amount is simple and quietly erodes in real terms.
Non-evidence maximum
NEMThe amount of coverage issued automatically without medical evidence. Above it, the member must complete individual underwriting.
The NEM scales with group size, so a small plan’s is low. Check the benefit formula against actual salaries: a formula that exceeds the NEM leaves your highest-paid people uninsured above it until they submit evidence, and almost nobody does unprompted. This is one of the most common uncovered exposures in small-group plans.
Overall maximum
The ceiling on coverage regardless of formula or evidence.
Relevant when an owner-manager on a high salary assumes two times earnings means two times earnings. It may not.
Evidence of insurability
EOIMedical underwriting on an individual — required above the NEM, for late applicants, and for optional coverage.
Track outstanding forms. An unapproved form means the coverage does not exist, and the employer usually believes it does.
Short-term disability
STDIncome replacement for the first weeks of disability, typically a percentage of salary for fifteen to seventeen weeks, bridging to long-term disability.
Many small employers skip STD and rely on EI sickness benefits. That is a legitimate choice, but it should be a choice — most have never been shown what the gap looks like.
Elimination period
The wait between disability onset and the first LTD payment — most commonly 119 or 120 days, aligning with the end of EI sickness benefits or an STD plan.
Check what actually covers the gap. A plan with a 120-day elimination period and no STD is asking employees to survive four months on EI or savings.
Own occupation vs any occupation
The definition of disability. Own occupation pays if the member cannot do their own job. Any occupation pays only if they cannot do any job they are reasonably suited to. Most contracts run own-occupation for the first two years, then switch.
The change-of-definition date is where claims most often terminate — and it is rarely explained to anyone in advance.
Definition of earnings
What counts toward insured salary — base only, or base plus bonus, commission or overtime, and averaged over what period.
Critical for commissioned or variable-pay staff. A base-only definition can insure a fraction of someone’s real income, and they will not discover it until they claim.
All-source maximum
A ceiling on total income from all sources while disabled — LTD, CPP disability, workers’ compensation, other coverage — commonly around 85% of pre-disability net income.
Explains the outcome people find hardest to accept: a member is approved for CPP disability and their LTD payment falls by the same amount.
Offsets and integration
How other income reduces the LTD benefit. Primary direct offsets deduct the member’s own CPP-D award only; primary and dependant offsets also deduct children’s benefits.
A materially different outcome for a claimant with children, and almost never compared between quotes.
Pre-existing condition clause
Excludes disability arising from a condition treated in a defined window before coverage began — commonly three months prior, with the exclusion lapsing after twelve months of continuous coverage.
The single biggest risk in moving a plan’s disability line. If someone is under treatment at the switch, a new insurer may decline a claim the previous one would have paid. Check before any move, every time.
Waiver of premium
Life coverage continues without premium while the member is totally disabled, subject to approval.
Frequently missed on small plans. Employers keep paying life premium for a disabled employee for years because nobody filed the waiver.
Conversion privilege
The right to convert group life to an individual policy on termination without medical evidence, generally within thirty-one days.
Short and absolute. An employer who fails to inform a departing employee — particularly one leaving because of illness — has real exposure. It belongs on the termination checklist.
Taxability of disability benefits
If the employer pays the LTD premium, the benefit is taxable income to the employee. If the employee pays it, the benefit is received tax-free.
The highest-value piece of advice on this page, and it costs the employer nothing. Structuring LTD as employee-paid turns a taxable benefit into a tax-free one. If your employer pays your LTD premium, that is worth a conversation.
Compare your benefit formula against the non-evidence maximum on your schedule. If two times salary puts anyone above the NEM and no medical evidence was ever submitted, that person is insured only up to the NEM — and both they and the employer almost certainly believe otherwise.