Avoiding the Long Term Disability (LTD) Pitfalls
LTD Benefits are great income replacement benefits for employees and employers. Everyone should be clear about the benefits that are "understood" to be in place. You don't want to discover a problem at claim time because it is then too late to fix it.
Whether you have an existing group LTD benefit or are considering putting an LTD plan in place, at least be aware of some of the areas where mistakes often occur:
• If any portion of the LTD cost is paid by the employer, the benefit upon receipt is a taxable benefit. If it is a taxable benefit the amount of benefit available is higher.
• Make sure your benefit booklet accurately identifies whether the LTD benefit is taxable or non taxable at claim time.
• The onus on the above information and reporting is on the employer, not the insurance company. If employees are sharing in any benefit costs, make sure the employee portion first is towards the ltd benefit.
• If optional amounts of LTD benefit are available above the NEM, (non evidence maximum), make sure that all employees are aware of this option in writing at least annually.
• Be sure that your benefit amounts are appropriate for all employees. Senior executives may need higher amounts of coverage, perhaps enhanced by classification or with supplementary individual LTD plans.
• During employee reviews have the employee sign off on their wish to decline the optional coverage and retain it on file. • Always send in salary updates to the insurer as they occur if significant and at least annually so your records are up to date.
• Be sure to define "earnings" in your application/contract so there are no problems at claim time as to the status of bonus, dividends, commission etc.
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