Misconception #6: LTD Benefits Cover All Lost Income
Fictional Conversation (overheard at a wine bar)
Person A: “LTD is supposed to replace all the income I lose, right? I mean, that's what I was told.”
Person B: “Yeah, that sounds about right. I think it’s meant to make sure you don’t lose your standard of living.”
Person A: “I’ve heard it’s pretty much like getting your full salary, so I’m not worried.”
How to Overcome:
LTD benefits typically replace only a percentage of your pre-disability income, and this may not fully cover your living expenses. Most policies cover about 60-80% of your income, and depending on your lifestyle or financial obligations, this may not be enough. Some individuals rely on supplementary income sources or personal savings to bridge the gap.
To overcome this, individuals should calculate their monthly expenses and ensure they are financially prepared for the possibility of a reduced income. It may be wise to consider supplemental insurance or long-term savings to ensure that you maintain your standard of living in the event of a disability.
Technicalities:
In Swanson v. Manulife Financial (2019), the Ontario court examined a case where the claimant argued that their LTD benefits did not fully replace their income. The insurer’s policy had a cap on the amount it would pay out, which led to financial strain for the claimant. The court found that the claimant had a valid case for seeking additional support, and it emphasized that insurers should consider the claimant's actual income needs when determining benefit payouts.
