A Guide to Short-Term Disability Insurance

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Would you be able to survive on your savings if you were unable to work for six months? In the past, your employer often provided coverage if you were incapacitated by accident or injury. As more and more Canadians become self-employed (around 14%), however, there is a real danger of falling through the cracks in the system.

Additionally, employer-funded short-disability means that the company you work for will be substantially involved in any process of making a claim and getting a payout. As the number of claims for mental health disabilities such as anxiety and depression rise, many Canadians are opting for policies that do not directly involve their employer.

Finally, private short-term disability insurance policies tend to have much higher limits on payouts and are not taxable as income. Higher earnings are likely to find a private policy substantially more remunerative than one controlled by the government or an employer.

What is short-term disability?

Short-term disability insurance is a policy that pays you when you are unable to work due to sickness or injury. In Canada disabilities related to mobility, pain, mental health and flexibility are the most common causes of inability to earn. 

Short-term disability (STD) can either be a private policy or one organized by your employer.

An employer-organized STD is provided as a benefit to a job by your employer and typically covers up to 6 months in which you are unable to work due to injury or sickness.

A private STD policy is chosen and paid for by an individual. These policies typically take between 1% and 3% of gross earnings. These policies usually have higher upper limits for payouts and may give you more control over the process of gaining a diagnosis and agreeing on a treatment plan.

It is worth noting that employer-organized short-term disability payouts are recognized as income and taxed as such. In contrast, private short-term disability payouts are not taxed as they are funded by your own contributions.

Good to know

If your employer does not offer short-term disability coverage you may be eligible for EI (employment insurance) which is paid by the Canadian government. 

How does short-term disability work?

Short-term disability pays you a percentage of your normal wage over a period in which you are unable to work.

Freelancers and the self-employed can purchase private short-term disability insurance through an online service or a broker. These policies vary but typically pay between 50% to 67% of your regular salary. Most insurers will require a minimum number of hours worked per week, typically around 20 hours. A medical certificate will be required from a medical professional in order to certify your inability to work.

EI short-term disability is funded by employment taxes and paid out by the government. It can last up to 15 weeks and pay 55% of previous earnings, up to a limit of $2,380 per month. It is not possible to receive EI benefits if you are receiving short-term disability from either an employer or a private scheme.

Employer-offered short-term insurance can last up to 24 weeks and will pay between 40% and 60% of your normal salary. You will usually be required to undergo an independent medical examination (IME) by a doctor of either your employer's or the insurance provider's choosing.

After 6 months, if you are still unable to return to work then you will need to look at transitioning to long-term disability.

What is the difference between short-term and long-term disability?

Short-term disability typically covers temporary conditions with an expectation that you will return to work. 

Long-term disability insurance begins when short-term insurance or EI benefits end. Long-term disability typically covers permanent disabilities, that is injuries or illnesses that will continue to affect your ability to work. 

Long-term disability will usually distinguish between whether you can return to the job you had previously and whether you can work any job. For example, a loss of mobility might prevent a return to a physically strenuous job environment but not a sedentary desk job.

Types of disabilityNature of disabilityDuration of disabilityDistinguish between ability to do your job and any job?Provided by
Short-term disabilitytemporaryUp to 6 months Private or through an employer
Long-term disabilitypermanentAfter 6 months Private or through government pension plan (CPP or QPP)
Short-term disability vs long-term disability

Good to know

Please see our long-term disability guide for a more in-depth look.

How to apply for short-term disability?

To apply for short-term disability you will need a medical certificate attesting to your condition from a medical professional.

First of all, you should check if you have coverage through your employer and if so investigate their policy’s duration and rate of compensation.

If you are not covered you may be eligible for EI (employment insurance) which is managed and paid out by the Canadian government. To be eligible for EI you must:

  • Have worked sufficient hours
  • Already used up your allotted sick leave

If you qualify for neither of the above, or you wish to supplement the income from these, you may want to purchase private short-term disability insurance. This can be done through a private broker or online, you can compare short-disability quotes right here on this website.

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What qualifies for short-term disability?

The definition of a disability can vary in-between different insurance companies and even between different policies in the same company.

Your symptoms, their severity, and how they prevent you from working are more important in qualifying for short-term disability than the specificity of your condition. 

However, a diagnosis allows a doctor to create a treatment plan for you. Insurers prefer to have a clear diagnosis and treatment plan and may stop payments or even deny your claim if they do not see an attempt to change your condition. 

Watch out!

The most common claims to be denied are burn-out, pregnancy and stress.

Burn-out and stress are vaguely defined conditions that will require a strong diagnosis in support of an approved claim. By contrast, depression and anxiety are nationally recognized as disabilities and have clear definitions and treatment plans. 

Pregnancy is not defined as a disability however there may be complications that make your job impossible.

Here are some common conditions that may qualify for short-term disability:

  • Anxiety
  • Back Problems
  • Bipolar Mood Disorder
  • Carpal Tunnel Syndrome
  • Chronic Fatigue Syndrome
  • Chronic Pain
  • Complex Regional Pain Syndrome
  • Crohn’s Disease
  • Depression
  • Fibromyalgia
  • Heart Disease
  • Headache and Migraine
  • Irritable Bowel Syndrome (IBS)
  • Knee Disorders
  • Lupus
  • Lyme Disease
  • Multiple Sclerosis
  • Neck and Cervical Disorders
  • Psoriatic Arthritis
  • Sleep Disorders
  • Vestibular Disorders
  • Visual Disorders

How much does short-term disability pay?

Short-term disability is calculated as a percentage of your previous earnings. 

Private short-term disabilities typically have the highest upper limits on payouts. Compensation can go as high as $24 000 a month.

EI benefits pay 55% of previous earnings, up to a limit of $638 per week.

Employer-offered will vary in compensation from company to company. However, typically compensation will range between 40% and 70% of your previous earnings. Upper limits again will vary.

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How long does short-term disability last?

Employment Insurance (EI) can last up to 15 weeks. After this, if you are still unable to work you will need to look into short-term disability insurance.

Short-term disability can last up to 6 months, whether private or organized by your employer. After 6 months you will either need to purchase long-term disability insurance or apply for help through the Canadian Pension Plan (CPP) or Quebec Pension Plan (QPP).

Who pays for short-term disability?

EI is paid for by your taxes, it is distributed by the Canadian government.

Self-funded private disability insurance is paid for by your contributions.

Employer-organized short-term disability insurance falls into two subdivisions, group insurance plans, employer-funded plans

Group insurance plans

When jobs provide group coverage for employees, covering dental and medical, short-term disability will often be included.

These plans are run by an insurance company, which will be in charge of judging claims and paying out.

Employer-funded plans

This type of short-term disability is organized directly by your employer. 

That means that your employer will be in charge of judging your claim and deciding the payout. They will also be more directly involved with your treatment plan. 

Is short-term disability taxable?

This depends on the type of disability insurance you have.

STD insurance providerWho pays STD benefits?Is the STD income taxable?
Employment insuranceCanadian government
Private STD insuranceInsurance company
Group insurance planInsurance company
Employer-funded planYour employer
Taxable disability income

If you want non-taxable, secure disability protection that is not reliant on your employer´s cooperation, you can use our comparison tool to find the best deal to protect yourself and your income now.

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