Let’s Get Flexible: Improving Long-Term Disability Insurance for Older Workers

April 22, 2025 – With a wave of Canadians staying in the workforce past age 65, employers need to improve long-term disability insurance (LTD insurance) to better reflect the needs of today’s workforce, according to a new C.D. Howe Institute report.

In “Rethinking Age-Cutoffs for Long-term Disability Insurance,” author Joe Nunes examines LTD insurance, which provides income protection mostly through an employer-sponsored group insurance plan to workers following significant accidents and illness after 90 or 180 days of disability. He argues that a fixed age cutoff of 65 for benefits may no longer be appropriate for all workforces or legally defensible where the cutoff is not linked to pension eligibility.

“Over the past 50 years, the life expectancy of Canada’s population has increased by approximately 10 years to more than 80 years today; and a greater number of workers are looking to continue working past age 65 either due to financial need or as a life choice,” says Nunes, Co-Founder and Executive Chairman, Actuarial Solutions Inc. “Instead, employers need to proactively review plan designs to avoid discrimination claims and tailor coverage based on the specific demographics of their workforce.”

While an age cutoff is essential for managing costs and maintaining program sustainability in LTD insurance, Nunes argues a one-size-fits-all plan is not the best approach – laying out three flexible options for future employer program design.

One option includes extending disability coverage and benefit payments to age 67, according to Nunes. This offers workers a slightly longer protection period, especially at an age when most workers are expected to retire.

Another alternative is adjusting the benefit formula, reducing the percentage of income replaced for workers with a disability as they age. This would flatten the curve of increasing costs and provide a greater duration of coverage at older ages rather than a shorter cutoff.

However, should an older worker who is not yet eligible for other forms of income replacement develop a disability, the LTD insurance benefit may be inadequate relative to pre-disability earnings until they turn 65. This design would also require identifying ages for when the insurance should phase out, and clear communication with workers.

Finally, employers could guarantee a minimum of 24 months of benefits for workers who develop a disability after age 63. “This ensures income protection during the transition from disability to a reasonable retirement age while limiting costs to 24 months of income protection,” says Nunes. The cost of this modification would be borne exclusively by workers over age 63.

Given the complexity of some chronic conditions at older ages, Nunes notes that some may raise concerns that this approach could be open to misuse. Further, in any group, there will be different opinions on what coverages are optimal, and it is up to employers and employees to work together to determine the best program design that balances cost and protection.

He adds that a more defined legislative framework would streamline the process and avoid inconsistencies. Without clear laws to guide LTD insurance, he says that employers may struggle to ensure that their plans comply with legal standards. Additionally, workers and employers may face unnecessary costs in litigating program design.

“Until there is clear guidance, employers should be proactive in LTD insurance program design,” concludes Nunes. “Ensuring that workers have access to income protection through LTD insurance is not only in the best interest of workers but also benefits employers and taxpayers.”

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For more information please contact: Joe Nunes, Co-Founder and Executive Chairman, Actuarial Solutions Inc.; Lauren Malyk, Manager, Communications, C.D. Howe Institute, 416-873-6168, lmalyk@cdhowe.org