Do you have enough money saved up to live on if you were suddenly unable to work? Loss of income can be a devastating reality. Many people live paycheck to paycheck and rely on their weekly pay to meet their financial obligations.
As a result, many Canadian households would be in economic turmoil in a few short weeks or months due to an unexpected loss of income.
However, there are some safeguards available in Canada to mitigate that risk. One of which is wage loss insurance.
What is Wage Loss Insurance in Canada?
Wage loss insurance is a form of worker’s compensation available to Canadians. These are benefits paid to employees if they could no longer work due to an illness or injury.
Additionally, it covers maternity leave, physiological injuries, and the worsening of existing medical conditions due to workplace strain. The plans are considered no-fault, meaning it doesn’t matter who is at fault for the injury, and it covers loss of income in addition to medical expenses.
The employee’s benefits can be paid directly by the employer, a board of trustees, an independent organization, or an insurance company. However, certain conditions must be met for an insurance plan provided by an employer to classify as a wage loss replacement plan or WLRP.
What are the requirements to receive a Wage Loss Replacement Plan?
Firstly, the wage loss insurance plan must be funded in part or totally by the employer. Contributions paid in by the employees cannot wholly fund it. A WLRP must also be a group plan. It has to offer benefits to more than just a single employee.
WLRP will perform like a traditional insurance plan. If the funds are collected and distributed by the employer or a board of trustees, premiums paid into the fund must be large enough to cover the cost of potential reimbursement payments. Premium rates will be based on many factors that can include your age and general overall health, among other factors.
Lastly, benefits must be paid in increments. They can’t be paid in one lump sum to employees. Benefits will begin on the next scheduled shift to work after the claim begins and will continue until you can return to work. Payment amounts are factored based on your regular weekly earnings.
Is Wage Loss Insurance the same as Short Term Disability?
Wage Loss insurance is not the same as Short Term Disability, and although they are similar, they are two distinct types of insurance plans. WLRP covers loss of income that occurred while on the job, and disability insurance covers loss of income due to illness or accident that occurred off the job.
Disability insurance is considered an umbrella policy that will pay sick leave, as well as short or long-term inability to work. You must meet certain criteria to receive payments. These plans are not considered “no-fault” plans, and the requirements of your specific plan must be met to qualify for benefits.
Short and long-term disability insurance also pays a lower amount than a work loss insurance plan. They may only pay you 60% of your wages and only pay benefits for up to a few months. This wage disparity may leave you with a financial gap while you recover from illness and are still unable to work.
Which type of plan should I choose?
The purchase of any insurance policy is a very personal exercise. You need to take a look at your situation to decide which type of coverage is best. Is your job risky? How likely is the potential of you getting sick on the job? Is it more likely that you could get hurt or become ill outside of the workplace?
Also, note that you are engaging in a “compensation bargain,” which means you are giving up any right to sue your employer for negligence in selecting to participate in wage loss insurance provided by your employer. In some instances, a disability plan may give you more protection than work loss insurance.
Do Your Homework
Life can throw curveballs, and you could face an unexpected loss of income that can negatively affect your financial life. When selecting any type of insurance coverage, it is always best to consult a professional.
Insurance brokers can assess your level of risk and advise you on your best options. Insurance policies can offer protection from a host of perils in our everyday lives and protect things like our homes and automobiles.