If one of your employees became too ill or injured to work for a year or longer, how would they pay their mortgage, cover household expenses and support their family?

For many employees, their ability to earn an income is their most valuable financial asset. Yet an extended illness or serious injury can interrupt that income for months or even years.

For small-business owners across Red Deer and Central Alberta, long-term disability (LTD) insurance is an important consideration when building an employee benefits package. It helps protect employees against the financial consequences of a prolonged disability while demonstrating that your business cares about their long-term well-being.

What Is Long-Term Disability Insurance?

Long-term disability insurance provides eligible employees with a portion of their income when a qualifying illness or injury prevents them from working, subject to the terms of their insurance policy.

Conditions that may lead to a long-term disability include:

• Cancer and other serious illnesses
• Heart conditions and stroke
• Significant back injuries and chronic musculoskeletal conditions
• Neurological disorders
• Mental health conditions that prevent an employee from working

Disabilities aren’t always the result of workplace accidents. They can develop gradually or occur unexpectedly, affecting an employee’s ability to earn an income.

LTD coverage is designed to provide ongoing financial support after the plan’s waiting period has been satisfied.

How Does LTD Insurance Work?

Although coverage varies by insurer and plan design, a typical long-term disability plan includes several key features.

1. A waiting period

Employees must generally be disabled for a specified period before LTD benefits begin. Many plans use a waiting period of approximately 120 days, often coordinated with short-term disability benefits or other income support.

2. Income replacement

If an employee qualifies, the plan typically replaces a percentage of their insured pre-disability earnings. The exact percentage, monthly maximum and eligibility requirements depend on the policy.

3. An ongoing benefit period

Depending on the plan, benefits may continue for a specified number of years or until a maximum age, often age 65, provided the employee continues to meet the policy’s disability definition and other requirements.

4. A definition of disability

This is one of the most important provisions in an LTD contract. Some plans initially assess whether an employee can perform their regular occupation. After a specified period, the definition may change to whether they can perform another suitable occupation based on their education, training or experience.

Understanding these provisions before choosing a plan helps employers make informed decisions about the coverage they provide.

Why Is LTD Coverage Important for Small Businesses?

For a small business, an employee’s extended absence can create challenges for both the individual and the organization.

LTD insurance offers several potential advantages:

• Financial protection: Helps employees maintain an income during a qualifying extended disability.
• Employee retention: Demonstrates a commitment to employee well-being and financial security.
• Recruitment: Strengthens your overall compensation and benefits offering when competing for qualified workers.
• Peace of mind: Gives employees greater confidence that they have financial support if a serious health issue prevents them from working.
• A more complete benefits package: Complements health, dental, life insurance and short-term disability coverage.

For smaller employers, offering meaningful benefits can help build a workplace where employees feel valued without necessarily requiring the same resources as a large corporation.

Short-Term Disability vs. Long-Term Disability

Short-term and long-term disability insurance serve different purposes.

Feature	Short-term disability (STD)	Long-term disability (LTD)
Primary purpose	Covers shorter periods away from work	Covers prolonged disabilities
When benefits begin	After a relatively short waiting period, depending on the plan	After a longer elimination period
Benefit duration	Usually weeks or months	Potentially years
Typical role	Supports recovery from temporary conditions	Protects income during extended disabilities

The two coverages can work together to provide a more continuous level of income protection. However, employers should confirm that the waiting periods and benefit provisions coordinate properly.

Are LTD Benefits Taxable?

An important consideration when designing an LTD plan is how premiums are paid.

In Canada, if an employer pays all or part of the premiums for a group wage-loss replacement plan, benefits received by the employee will generally be taxable. If the employee pays the entire premium with after-tax dollars, qualifying benefits are generally received tax-free.

This distinction can significantly affect the employee’s actual take-home income while on disability.

Employers should review the premium arrangement and benefit design with their benefits provider and payroll or tax professional before making a decision.

For additional guidance, visit the Government of Canada’s information on disability insurance.

What Should Employers Consider When Choosing an LTD Plan?

Not all long-term disability policies offer the same protection. When reviewing your options, consider:

• The percentage of income replaced and the maximum monthly benefit
• The waiting period before benefits begin
• The maximum benefit period
• The definition of disability and when it changes
• Whether partial or residual disability benefits are available
• How benefits from other sources may reduce the insurance payment
• Whether employees must provide medical evidence for coverage above specified limits
• The tax treatment of benefits based on who pays the premiums

The goal is to choose coverage that provides meaningful protection while remaining affordable and appropriate for your business.

Is Your Business Providing Enough Income Protection?

Health and dental insurance help employees manage eligible medical expenses, but they don’t replace the income an employee loses when they cannot work for an extended period.

For businesses with two or more employees, LTD coverage is worth considering as part of a broader group benefits strategy. When combined with short-term disability and other workplace benefits, it can help provide employees with more comprehensive financial protection.

At Central Alberta Benefits, we help Central Alberta business owners explore group health and dental coverage and understand the options available when building a benefits package for their teams.

Want to explore group benefits for your business?

Request a free, no-obligation quote and discover the options that may fit your business, your employees and your budget.

Disclaimer: This article is for general educational purposes only and does not constitute insurance, legal or tax advice. Coverage, eligibility, benefit amounts and claim decisions are governed by the applicable insurance contract.