Disability insurance through work: is your group plan enough?

Many Canadian employers provide disability coverage as part of a group benefits plan, usually short-term disability or sick leave for the first few months and long-term disability after that. A group plan is often subsidized by your employer and usually covers you up to a set amount without health questions, which makes it hard to beat on price. It also has gaps: it may replace less of your pay than you expect, it can switch to a stricter test after two years, and it usually ends when you leave the job. This guide explains how group plans work and how to tell whether yours is enough. How disability insurance works in general is in our guide to disability insurance in Canada.

How group disability coverage fits together

Employment Insurance sickness benefits pay 55 percent of insurable earnings, to a maximum of $729 a week in 2026, for up to 26 weeks. Employees must use an employer sick leave plan before claiming them.

How a group long-term disability plan works

The details are in your benefits booklet. These are the terms to look for:

• Benefit amount. Usually a set share of your earnings, such as 60 to 70 percent, or a formula that pays a higher share of the first part of your earnings. The Canadian Life and Health Insurance Association describes disability insurance as usually paying around two-thirds of earnings.
• Monthly maximum. A cap on the benefit, such as $6,000 or $10,000 a month in the booklets we reviewed. Higher earners can have a large share of their income uninsured.
• Non-evidence maximum. The most you can get without answering health questions. Coverage above it starts only once the insurer approves your health evidence. If you never applied, or were declined, your benefit stops at the non-evidence maximum.
• Waiting period. In the Canadian Institute of Actuaries’ study of group long-term disability claims, the most common waiting period was four months (53 percent of claims), then six months (26 percent).
• Definition of disability. Usually your own occupation for the first 24 months of benefits, then any occupation you are qualified for. Many plans count only jobs that would pay a set share of your former earnings, such as 60 percent, or at least as much as the benefit. Our guide to own occupation vs any occupation explains what that switch means.
• Benefit period. Usually to age 65, but check: one plan we reviewed paid only two years of benefits to employees with less than two years of service.

The gaps in a group plan

Earnings the plan doesn’t count

Many plans base the benefit on your regular salary only. In the booklets we reviewed, bonuses were excluded. Overtime was excluded or counted only if received regularly, and commission was excluded or counted only where the plan said so, usually based on the previous year’s tax slips. If a large share of your pay is variable, your benefit may be far below what you actually earn.

Taxable benefits

If your employer paid any part of the premium, the benefits are taxable, less what you paid toward the plan yourself. A taxable benefit of 66 percent of your salary leaves you with much less than 66 percent of your salary after tax. Compare the after-tax benefit with your current take-home pay, not your gross salary. Our guide to whether disability insurance is taxable explains the rules.

Offsets

Group plans reduce your payment by other disability income, such as Canada Pension Plan or Quebec Pension Plan disability, workers’ compensation and other group coverage. Many also cap your income from all sources, often at 85 percent of your pre-disability earnings. When benefits are tax free, that cap is usually measured on your earnings after tax. Plans commonly require you to apply for Canada Pension Plan or Quebec Pension Plan disability, and some let the insurer deduct an estimate of it even if you don’t. If it is later approved with back pay, the insurer can recover the overlapping amount from you. At least one plan we reviewed stops counting it if your application and an appeal are both declined.

A policy you buy privately is not offset under some group plan wordings we reviewed, but individual coverage arranged through your employer can be. Check the plan’s definition of other income.

Pre-existing conditions

Some group plans won’t pay for a disability caused by a condition you saw a doctor about, took medication for or were treated for shortly before joining, unless it starts after you have been covered for a set time. One form looks back three months and applies for the first 12 months of coverage. Others look back further, apply longer, or lift the limit once you have gone a set time without treatment. Not every plan has this clause.

The switch to any occupation

After about two years of benefits, most plans reassess whether you can do any job you are qualified for, not just your own. Claims can end at that point even when your health hasn’t changed, though many plans only count jobs that pay a set share of your former earnings.

What happens when you leave your job

Group disability coverage generally ends when your employment ends, apart from any period your employer must continue benefits under employment standards law. Unlike group life insurance, group long-term disability usually has no right to convert to an individual policy. None of the booklets we reviewed included one. At least one insurer offers a limited conversion, up to half of the group coverage, if you apply within 31 days.

If you are already receiving long-term disability benefits when your employment ends, the claim usually continues under the plan’s terms. If you became disabled while still covered, even if you were still in the waiting period, you may still be able to claim, so check your booklet and its claim deadline. Severance or pay in lieu of notice can delay when long-term disability benefits start.

The bigger risk is the gap: if you leave for a job without benefits, start a business or develop a health condition between jobs, you may not be able to buy coverage on the same terms later. Our guide to group life insurance conversion covers the life insurance side of leaving a job.

When your own policy makes sense

An individual disability policy fills the gaps above:

• High earners above the plan maximum. Individual coverage can insure income the group plan caps.
• Variable pay. Insurers can count bonus and commission income you can prove.
• Taxable group benefits. A policy you pay for yourself pays tax free benefits on top.
• Career changes. An individual policy goes with you, including into self-employment.
• Professionals. In some professional occupations, an individual policy can include true own occupation coverage, which group plans rarely offer.

Individual coverage has trade-offs: it needs medical and financial underwriting, may come with exclusions or be declined, and costs more than a group plan. Insurers set how much individual coverage you can buy with your group coverage in mind, so the two are designed to fit together. Prices are in our guide to what disability insurance costs.

If a claim is denied

Start with the insurer’s internal appeal, and note its deadline, which can be as short as three months in some plans. If the appeal fails, the OmbudService for Life and Health Insurance offers a free, independent review once you have the insurer’s final position letter; its recommendations are not binding. In Quebec, the Autorité des marchés financiers can also examine a complaint the insurer has not resolved. Limitation periods for going to court differ by province and can start running from the first denial or termination letter, and an internal appeal may not pause them, so get legal advice early.

Frequently asked questions

How much does group long-term disability pay?

Group long-term disability plans usually pay around two-thirds of earnings, often as a set percentage such as 60 to 70 percent, up to a monthly maximum. Benefits are reduced by Canada Pension Plan or Quebec Pension Plan disability, workers’ compensation and other disability income, and they are taxable if your employer paid any of the premium.

Can I keep my group disability insurance if I leave my job?

Usually not. Group disability coverage generally ends when your employment ends, and group disability usually has no right to convert it to an individual policy. Some insurers offer a limited conversion. A claim already being paid when you leave usually continues under the plan’s terms.

Do I have to apply for CPP disability if I am on long-term disability?

Usually yes. Group plans reduce your benefit by Canada Pension Plan or Quebec Pension Plan disability, and some let the insurer deduct an estimate of it even if you do not apply. If Canada Pension Plan or Quebec Pension Plan disability is later approved with back pay, the insurer can recover the overlapping amount.

Should I buy individual disability insurance if I have a group plan?

It is worth considering if your income is above the plan maximum, if a large part of your pay is bonus or commission, if the benefits are taxable, or if you may change jobs or become self-employed. An individual policy goes with you and pays tax-free benefits if you pay the premiums yourself.

What to do next

Find your benefits booklet and note five things: the benefit percentage and maximum, whether benefits are taxable, the waiting period, when the definition changes, and what earnings count. A licensed advisor can work out the gap and price an individual policy to fill it.