Who Pays for Long Term Disability Coverage?

Long-term disability insurance, often called LTD insurance, can replace part of your income if an illness or injury keeps you from working for a long time.

One of the most common questions is: Who pays for long-term disability coverage?

The answer depends on the plan. The employer may pay the premiums, the employee may pay them, or both may share the cost. Once a claim is approved, the insurance company usually pays the monthly benefits.

Who pays the premiums can also affect whether your LTD benefits are taxable.

What Is Long-Term Disability Insurance?

Long-term disability insurance provides income replacement when a medical condition prevents you from working for an extended period.

Coverage may come through:

• An employer benefits plan
• A union or professional group; or
• A private insurance policy

Self-employed workers can also buy individual disability insurance.

Most LTD plans replace about 60% to 70% of pre-disability income, subject to a monthly limit. The exact amount depends on the policy.

Who Pays the LTD Premiums?

There are three common arrangements.

Employer-Paid LTD Coverage

Some employers pay the full cost of LTD insurance as part of an employee benefits package.

When the employer pays all or part of the premium, the LTD benefits are generally taxable. This means income tax may be deducted from each monthly payment.

Employee-Paid LTD Coverage

In some workplaces, the employee pays the full premium through payroll deductions.

When the employee pays the full premium with after-tax income, LTD benefits are generally tax-free.

Employees should keep pay statements showing their LTD deductions. These records may help confirm how the plan was funded.

Shared LTD Premiums

Some plans divide the cost between the employer and employee.

When the employer contributes to the premium, the benefits are generally taxable. However, the employee’s contributions may affect the final tax treatment.

Workers should ask payroll, human resources, or the insurer to explain how the plan is funded.

How Can You Tell Who Pays?

Check your pay statements for deductions marked “LTD,” “disability,” “DI,” or “income protection.”

You should also review your:

• Benefits booklet;
• Insurance policy;
• Employment contract; and
• Collective agreement.

Ask whether the employer pays any part of the premium and whether your deductions are made before or after tax.

Do not assume that an LTD deduction means you pay the full cost; your employer may also contribute.

Who Pays the Monthly LTD Benefits?

The insurance company usually pays the monthly benefits after approving the claim.

The employer may provide information about your job, income, attendance, and last day worked. However, the insurer normally decides whether you meet the policy’s definition of disability.

Some employers use self-funded plans. In those cases, the employer provides the money while another company manages the claim.

How Much Does LTD Insurance Pay?

Most LTD plans replace only part of your income.

The policy may calculate benefits using your salary, average earnings, or a fixed amount. It may not include overtime, bonuses, tips, or commissions.

Taxes and other income may reduce the amount you actually receive.

When Do LTD Benefits Begin?

LTD benefits do not usually begin on the first day you stop working.

Most policies have a waiting period, also called an elimination period. It may last several weeks or months.

During this time, you may receive sick leave, short-term disability benefits, Employment Insurance sickness benefits, or workers’ compensation.

You should usually apply for LTD benefits before the waiting period ends.

What Does “Totally Disabled” Mean?

You do not need to be bedridden or unable to complete every daily task to qualify for LTD benefits.

The policy will define what disability means.

Many plans begin with an “own occupation” test. This means you may qualify if you cannot perform the main duties of your regular job.

After about two years, many policies change to an “any occupation” test. The insurer may then consider whether you can perform another suitable job based on your education, training, and experience.

What Conditions Can Qualify for LTD?

Both physical and mental health conditions may qualify.

Examples include chronic pain, back injuries, cancer, heart disease, arthritis, neurological disorders, depression, anxiety, PTSD, and brain injuries.

A diagnosis alone is not always enough. Medical evidence should explain how the condition affects your ability to work.

How Do You Apply for LTD Benefits?

Most LTD applications include forms completed by:

• The employee;
• The employer; and
• The treating doctor.

The application may ask about your symptoms, treatment, job duties, income, doctors, and last day worked.

Your doctor should explain your diagnosis, restrictions, treatment plan, and why you cannot perform your job.

Keep a copy of everything sent to the insurer.

Can Other Benefits Reduce LTD Payments?

Many LTD policies reduce payments when the claimant receives income from another source.

Common offsets include:

• CPP Disability benefits;
• Workers’ compensation;
• Employment income;
• Another disability policy; and
• Some pension payments.

The insurer may require you to apply for CPP Disability benefits. If approved, the LTD payment may be reduced by the same amount.

Does LTD Cover Workplace Injuries?

Workers’ compensation usually applies first when the illness or injury was caused by work.

An LTD policy may exclude workplace injuries or reduce payments by the amount of workers’ compensation received.

Workers should report workplace injuries quickly and review both systems before making decisions.

Do Health and Dental Benefits Continue?

Receiving LTD benefits does not always mean your health, dental, life insurance, or pension benefits will continue.

The answer depends on the employer’s plan, workplace policy, employment contract, or collective agreement.

Ask for written confirmation about which benefits will continue and who must pay the premiums.

What Happens If Your Employment Ends?

Being terminated after becoming disabled does not always end an LTD claim.

The main question is often whether the disability began while the employee was still covered by the policy.

However, termination can create disputes about the disability date, active employment status, severance pay, and coverage.

Get legal advice before signing a severance agreement or release.

Can the Insurer Require a Medical Examination?

Most LTD policies allow the insurer to request an independent medical examination.

The examination should be reasonable and related to the claim. Refusing to attend may lead to a denial or suspension of benefits.

Claimants should ask who will perform the examination and why it is being requested.

Can the Insurer Use Surveillance?

Yes. Insurers may use video, photographs, investigators, and public social media posts.

A short activity does not always prove that someone can work full-time. However, the insurer may compare observed activities with what the claimant reported.

Be honest and accurate about your abilities, limits, need for breaks, and pain after activity.

Why Are LTD Claims Denied?

Claims may be denied because of missing forms, limited medical evidence, missed deadlines, exclusions, or a pre-existing condition clause.

Benefits may also be stopped if the insurer believes the claimant can return to work, perform modified duties, or work in another occupation.

A denial does not always mean the person is not disabled. It may mean the insurer believes the evidence does not meet the policy’s test.

What Should You Do After an LTD Denial?

Read the denial letter carefully and ask for a copy of the policy.

Find out what information the insurer says is missing. You may be able to file an internal appeal or start a legal claim.

An internal appeal does not always stop the deadline for suing the insurer. Limitation periods vary by province and by the facts of the case.

Get legal advice as soon as possible.

Frequently Asked Questions

Are LTD benefits taxable?

Benefits are generally tax-free when the employee pays the full premium with after-tax income. They are generally taxable when the employer pays all or part of the premium.

How long can LTD benefits last?

Benefits may continue for a fixed number of years, until the claimant recovers, or until an age listed in the policy, such as age 65.

Can you work part-time while receiving LTD?

Possibly. Some policies provide partial or residual disability benefits. Work income must be reported and may reduce the monthly payment.

Can LTD benefits stop after two years?

Many policies change from an own occupation test to an any occupation test after about two years. The insurer may then review whether you can perform another suitable job.

Get Help With an LTD Claim

Who pays the LTD premiums can affect whether your benefits are taxable and how much money you receive.

The policy also controls when benefits begin, how disability is defined, what income is deducted, and when payments may stop.

If your LTD claim has been delayed, denied, or terminated, act quickly. An internal appeal may not protect the deadline for starting a lawsuit.

NOVA Injury Law represents people in long-term disability claims throughout Atlantic Canada. Our legal team can review your policy, explain how the premiums were funded, and assess your options after a denial or termination.

For more information or to arrange a free consultation, contact NOVA Injury Law at info@novainjurylaw.com.

This article was updated in 2026 and provides general legal information only.