What is wage loss insurance?: An Essential Guide for Canadians

Canadian employees work hard day in and day out to support themselves and their families. Unfortunately, life can throw unexpected curveballs, such as serious illnesses, injuries, and other unforeseen circumstances, preventing individuals from earning their wages. If you can’t work, you could experience financial hardship. One of the benefits your employer may provide to protect you is wage loss insurance. Wage loss insurance offers financial protection for employees who cannot work due to an accident, injury, illness, physiological condition or because they’re on maternity leave. In this comprehensive guide, we’ll dive into the details of wage loss insurance to help Canadians understand its importance and how it can help them navigate financially challenging times.

Understanding Wage Loss Insurance

If you’re unfamiliar with wage loss insurance, you must have a solid understanding of how it works. Wage Loss Insurance, also known as a wage loss replacement plan (WLRP), provides financial assistance to employees who cannot work due to medical conditions or injuries. The employer covers the cost of these plans. WLRPs are not available for employees to purchase privately, but other types of insurance which cover loss of wages can provide income support.

Definition of Wage Loss Insurance

Wage loss replacement plans are individual disability insurance policies placed in a group plan. In most circumstances, each person who has a WLRP must qualify for coverage by getting a medical exam. For an employer to be able to offer wage loss insurance, two or more employees must be part of the wage loss replacement plan.

Additional requirements of a WLRP are:

• You must be an employee; WLRPs don’t apply to owners, partners or self-employed individuals
• The employer, not the employee, pays the premiums.
• Benefits are not paid in a lump sum but made periodically, such as monthly
• A WLRP protects an employee’s wages if they can’t work due to an injury, illness, or because they are on maternity leave
• Funds collected are calculated to meet the needs of the plan and are either in a trust account or administered by a trustee

The Importance of Wage Loss Insurance for Canadians

As important as it is to work and earn a living, there are instances when we can’t control what life throws our way. Understanding the importance of wage loss insurance can help Canadians prepare financially for unexpected events. The financial protection that wage loss insurance provides can be the employees’ only lifeline to maintain their quality of life.

Types of Income Protection Insurance Products

Wage loss insurance is an important type of insurance that provides financial assistance to employees who cannot work due to an injury, illness, or critical medical condition. It comes in various forms, each offering distinct benefits. Here, we’ll look at different ways your income may be protected if you cannot work due to an illness or injury.

Wage Loss Replacement Plan (WLRP)

A WLRP is two or more individual disability policies administered as a group insurance plan. While WLRPs are similar to short or long-term disability plans, they differ. 

In most cases, you must have a medical exam before being covered by a wage loss insurance plan. On the other hand, most group disability insurance plans provide a basic amount of coverage for both short and long-term disability without you needing to take a medical exam.

The employer pays the premiums for WLRPs. The employer, the employee, or both may pay the premiums for short and long-term disability plans.

WLRPs typically offer higher levels of coverage than short or long-term disability plans. Employers sometimes offer a WLRP to attract high-level employees because high-earners may want more income protection than short or long-term disability insurance pays.

If you have a WLRP and leave your company, you may be able to take the policy with you. If you leave your company and have a short or long-term disability, you no longer have a plan with that employer.

Short-Term Disability Insurance

Short-term disability insurance provides financial assistance to employees who cannot work due to an injury or illness that causes a temporary or short-term disability. This type of disability insurance can be vital for those who rely on their income to support themselves and their families. Depending on the policy, it can provide coverage anywhere from several weeks to a year. Short-term disability insurance typically covers a percentage of the employee’s salary, allowing them to maintain their living standard while recovering.

Short-term disability insurance can also provide peace of mind for employers, as it can help reduce the financial burden of paying for sick leave or hiring a temporary replacement. This type of insurance is often offered as part of an employee benefits package and may be paid for by either the employer or the employee.

Long-Term Disability Insurance

Long-term disability (LTD) insurance is a type of disability insurance that provides financial support for employees who cannot work due to an injury or illness that causes a long-term or permanent disability.  LTD insurance can be a financial lifeline for those who cannot return to work for an extended period or may never be able to return. Long-term disability insurance policies typically cover several years of payments or until the employee reaches retirement age.

Long-term disability insurance can provide various benefits, including coverage for medical expenses, rehabilitation costs, and lost income. It can also provide peace of mind for employees, as they know that they can support themselves and their families even if they cannot work.

If your employer doesn’t offer a short or long-term disability plan or the coverage isn’t enough for your needs, you can purchase disability insurance privately. It’s a good idea to check any policies you have from work to see what they cover and then comparison shop among insurers if you need to supplement your policy. Be sure to read any policies you have or want to purchase carefully so you know the amount and types of coverage you have. A broker or agent can answer any questions you may have about disability insurance.

Critical Illness Insurance

Critical illness insurance provides financial assistance to employees diagnosed with a critical illness, such as cancer, heart attack, or stroke. This type of insurance provides a lump sum payment that can help cover medical expenses and living costs during recovery.

Critical illness insurance can be crucial for those diagnosed with a severe medical condition, as it can help reduce the financial burden of medical treatment and recovery. It can also provide peace of mind for employees, as they know they can support themselves and their families during difficult times.

Some employers offer critical illness insurance and life insurance as part of their benefits package, while others offer the employee the option to purchase it if they want it. Additionally, many companies offer critical illness insurance and life insurance if you want to buy it privately.

Overall, wage loss insurance is an essential type of insurance that can provide crucial financial support to employees who cannot work due to an injury, illness, or critical medical condition. By offering a range of benefits and coverage options, wage loss insurance can ensure that employees can maintain their standard of living and support themselves and their families during difficult times.

Provincial Income Protection for Employees

Each province offers some type of income protection for workers. The kind of support you can receive differs from province to province. The following table outlines some of the key features of each province’s plan:

Province	Plan	Key features
Alberta	WCB Alberta	Replaces loss of employment income if you can’t work because of a workplace injury or illness. Replaces up to 90% of your net weekly wage.
British Columbia	Worksafe BC	Replaces up to 90% of wages if you can’t work because of an injury or illness you sustained at the workplace. Pays wages until you can return to work. Covers partial or total disability. Can receive benefits once your claim has been approved-usually in 3 weeks or less.
Manitoba	Workman’s Compensation Board of Manitoba	Replaces loss of employment income if you can’t work because of a workplace injury or illness. Replaces up to 90% of your net weekly wage subject to deductions. May cover medical expenses resulting from injury or illness, such as the cost of an ambulance.
New Brunswick	WorksafeNB	Replaces up to 85% of net income if you can’t work as a result of workplace injury or illness. May provide homecare services. May cover transportation to medical appointments.
Newfoundland and Labrador	WorkplaceNL	Covers up to 85% of net earnings prior to injury or illness. You must be receiving medical treatment, and participating in a labour market re-entry program and a early-and safe return to work program.
Northwest Territories	Workers’ Safety and Compensation Commission	Covers injured for: Pays wage replacement benefits. Pays for costs of medical care you need. Pays a pension if your disability is permanent. Helps you prepare to return to work.
Nova Scotia	Workers’ Compensation Board of Nova Scotia	For work injuries it can pay: 75% of your net earnings for up to 26 weeks. 85% of net earnings after 26 weeks. Provides Permanent Impairment Benefit or Extended Earnings Replacement Benefits as long term benefits.
Nunavut	Workers’ Safety and Compensation Commission	Covers injured for: Pays wage replacement benefits. Pays for costs of medical care you need. Pays a pension if your disability is permanent. Helps you prepare to return to work.
Ontario	WSIB Ontario	Up to 85% of net pay if injury occurred after January 1, 1998. Benefits start day after your injury or illness and you start to miss work time. Can continue until your 65 or two years after the day you were injured if you were older than 63 at the time of injury.
Prince Edward Island	Workers’ Compensation Board of PEI	For work related injuries or illness you can receive up to 90% of your net annual earnings. For 2023, benefits capped on maximum earnings of $65,000. Benefits only apply if you have to miss work due to illness or injury.
Quebec	CNESST	For employees who have cannot work due to a workplace injury. Employer pays 100% of worker’s wages for the day they were injured and 90% of wages for the following 14 days. CNESST pays an amount equal to 90% of net income. Paid every 2 weeks.
Saskatchewan	Saskatchewan Workers’ Compensation Board	Depending on your circumstances, you may receive benefits for: Loss of earnings. Medical treatment and expenses. Temporary additional expenses. Permanent functional impairment.
Yukon	Workers’ Safety and Compensation Board	Work related injuries can qualify for: Loss of earnings. Medical Benefits. Permanent Impairment. Retirement benefits in some cases.

Canada Pension Plan Disability Benefits

The Canada Pension Plan provides disability benefits if you’re unable to work. To qualify for CPP disability benefits, you must:

• Have paid into the CPP
• Be under 65
• Have a disability that is long-term, or may persist for an indefinite period or could result in death
• Have a physical or mental condition that prevents you from engaging in gainful employment

The amounts you can receive can vary so it’s essential to check and find out what you can qualify for. CPP also offers a post-retirement disability benefit and a children’s benefit.

How Wage Loss Insurance Works

Wage loss insurance policies are designed to provide financial protection for employees who cannot work due to an injury or illness. These policies vary in terms of eligibility criteria, coverage, and benefits. Here’s what you need to know.

Eligibility Criteria

The eligibility criteria for wage loss insurance policies differ depending on the specific policy. In general, employees are eligible if they work for an employer who offers wage loss insurance and they’re registered in the policy. Some policies may have additional eligibility criteria, such as a waiting period before coverage begins, a medical exam, or a requirement that the employee work a certain number of hours per week.

Wage loss insurance is not the same as workers’ compensation. Workers’ compensation is a government-mandated insurance program that provides benefits to employees who are injured or become ill due to their job.

On the other hand, the different types of wage loss insurance are voluntary benefits employers can offer their employees.

Coverage and Benefits

The specific coverage and benefits of wage loss insurance policies vary.  A WLRP typically provides more coverage than a short or long-term group plan. The amount of income replacement depends on the individual’s income, and the duration of the coverage depends on the policy.

In addition to income replacement, some policies may provide benefits such as vocational rehabilitation, which can help an employee return to work after an injury or illness. Other policies may provide benefits such as home health care or transportation services to help the employee manage their daily activities while unable to work.

Claim Process and Payouts

If an employee cannot work due to an event that qualifies for wage loss insurance, the employee must submit a claim to their group plan insurer. The claims process may involve submitting medical records or other documentation to support the claim. The insurance provider will review the claim, and if approved, the employee will receive benefits according to the policy.

It’s important to note that some policies may have a waiting period before payouts begin. Depending on the policy, this waiting period can range from a few days to several weeks. Employees should also be aware that some policies may have a maximum benefit amount, meaning their payout may be less than their full salary.

Overall, wage loss insurance can provide valuable financial protection for employees who cannot work due to an injury or illness. If you’re interested in this type of coverage, talk to your employer or insurance provider to learn more about the specific policies available to you.

Factors Affecting Wage Loss Insurance Premiums

The premiums for wage loss insurance policies are determined based on various factors. These factors can range from age and gender to occupation and income. Understanding these factors can help individuals make informed decisions about their insurance coverage.

Age and Gender

Age and gender play a significant role in determining the cost of wage loss insurance premiums. Younger individuals and women typically have lower premiums. Younger individuals are less likely to have pre-existing health conditions, and women tend to live longer than men, making them less of a risk for insurance companies.

However, premiums may increase as individuals age. As people age, they are more likely to develop health conditions that could impact their ability to work and earn an income.

Occupation and Income

The occupation and income of the individual also affect the cost of premiums. People who work in high-risk jobs, such as construction, typically have higher premiums than those in low-risk jobs. Individuals in high-risk jobs are more likely to experience a workplace injury or illness that could impact their ability to work and earn an income.

Additionally, individuals with higher incomes may also have higher premiums. Insurance companies may assume that higher-income individuals have more to lose if they cannot work and earn an income.

Health and Lifestyle

The health and lifestyle of the individual also impact the cost of premiums. Individuals with pre-existing health conditions or unhealthy lifestyles may have higher premiums than those in good health. Individuals with pre-existing health conditions or unhealthy lifestyles are more likely to experience a health event that could impact their ability to work and earn an income.

Insurance companies may consider an individual’s family medical history when determining premiums. Some health conditions may be hereditary and increase an individual’s risk of experiencing a health event that could leave them unable to work.

Overall, understanding the factors that affect wage loss insurance premiums can help individuals make informed decisions about their insurance coverage. By considering age, gender, occupation, income, health, and lifestyle, individuals can ensure that they have the coverage they need to protect their income in the event of an unexpected event.

Wage loss insurance in Canada: The Bottom Line

Wage loss insurance is an essential safety net that helps protect employees from the financial loss that comes with unexpected events. Whether it’s wage loss replacement, short-term or long-term disability insurance, critical illness insurance, or provincial or federal income support, knowing the details and benefits of wage loss insurance can help you make informed decisions about your coverage options. Understanding the eligibility criteria, coverage, and benefits is crucial for individuals who want to prepare for the unexpected and secure their financial futures.