Weekly Indemnity

The Weekly Indemnity  or Short-Term Disability benefit is designed to compensate an employee for income lost as a result of short-term absences from work from an accident or sickness. Employers that provide a Short-Term Disability plan may opt out of the Employment Insurance Sickness Benefit and therefore qualify for a reduced E.I. premium rate. To be eligible to opt out, the STD plan must be at least equal to or better than the E.I. plan.

 

The main design features of a Short-Term Disability plan are;

 

Elimination Period

 

Typically, STD plans provide coverage on the first day following an accident or hospitalization and the 8th or 15th day of absence as a result of sickness. However, the elimination period for accident or hospitalization could be as long as 15 days. A shorter elimination period results in a higher premium. During the elimination or qualifying period, most employees are covered through their employer's salary continuance plan (self-insured). 

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Benefit Schedule

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The benefit schedule is generally based on a percentage of the employee's pre-disability weekly gross earnings. When determining an appropriate benefit schedule, the tax status of the STD benefit must be considered. Unless the plan member is paying the entire STD premium, the benefit will be taxable when received. The STD benefit will also be non-taxable when the employer pays the premium on behalf of an employee, but the amount of the paid premium is treated as taxable income to the employee.

 

A STD plan which is taxable should be based on a higher percentage of the employee's pre-disability gross earnings than a plan that is non-taxable. A taxable LTD plan will often be based on a schedule as high as 75% of pre-disability gross earnings whereas a non-taxable plan will generally not exceed 67%.

 

Benefit Maximum

 

The overall maximum is the maximum amount of insurance that the insurer will provide under the terms of the contract.

 

Benefit Period

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The benefit period is the maximum amount of time for which STD benefits are payable. Common benefit periods are 15 weeks (to coincide with the E.I. Sickness Benefit period), 17 weeks and 26 weeks. The STD benefit period is generally integrated with the Long-Term Disability (LTD) benefit. For example, a STD plan with a benefit period of 17 weeks would usually be coordinated with a LTD plan with an elimination period of 17 weeks. An employee who suffers a long-term disability can therefore receive benefits seamlessly as eligibility for the STD benefit ends and eligibility for the LTD benefit begins.