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May 2017

Terminated, with no disability insurance? There's a fix for that.

by Rona Birenbaum  | 


Typically, severance packages do not include a continuation of disability insurance. This, despite the courts having made clear* that an employer is obligated to continue all benefits during the common law notice period, in the absence of a contract stating otherwise!

But should a severed employee become permanently disabled during their notice period, the cost to the employer can easily run into the hundreds of thousands of dollars, if not millions. It’s a considerable risk.


Why is this obligation so often ignored in severance packages? I see three primary reasons. The employer:

  1. Is not aware of the legal obligation.
  2. Has not considered the financial exposure.
  3. Lacks a simple, cost-effective solution to fulfil their legal obligations.

If you’ve received a termination notice and the disability obligation has been ignored, you need to negotiate a transition disability policy as part of your severance package.


What is a transition disability policy?


A transition disability policy:

  • Provides individual coverage for a period of 6-24 months (typically, equal to your severance period).
  • Is designed to pay disability benefits that start 90 days after a severance and continue to age 60 or 65.
  • Includes coverage for both accident and sickness, and offers monthly benefits of up to $10,000 (actual amount depends on final base salary).

Why can’t I just get regular disability insurance?


Disability insurance is, technically, income replacement insurance. No income? No coverage. (While there are a handful of disability policies that don’t require earned income, they are limited in scope.)

It could be some time before you have a stable income upon which an individual policy would be justified. And if you make the leap to self-employment, it could take a few years before you have a track record of proven income upon which a new insurance company would provide coverage.


Is everyone eligible?


You may qualify if you:

  • Are age 60 or younger
  • Have been at work full time at full pay for 12 or more months
  • Apply for this coverage within 90 days of your last day at work

What’s the process?


The application includes a few medical questions. The insurer may require additional information from your physician before making a decision on whether to issue the policy.

There is a one-time premium, which makes it simple to negotiate into a severance package. We provide this cost to clients that have been terminated, so they can request the cost be included in their final compensation.


In summary


Disability insurance is one of the most important aspects of a group health and dental plan. You don’t want to be without it.

When your severance package includes a continuation of benefits, but excludes disability, get a quote for Transition Disability coverage. Then pass it on to your ex-employer with this article.


1 [2006] O.J. No. 34 (C.A.).Egan v Alcatel Canada Inc.

This information of a general nature. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

For business owners, Risk Management  




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