Innovations In Disability Coverage Beyond 65

The national average retirement age is pegged at 62, but recent trends in labour force estimates reflect a growing shift to delayed retirement. This tide is not enough to dramatically lift the average, but clearly this trend is visible in certain white and grey sectors of the workforce. At the same time, employment rates for Canadians age 55 and over continue to rise sharply. All of this point to longer working careers.

A recent Sun Life poll (the Canadian Un-retirement Index) concluded that in 2008, 51 per cent of respondents had expected to be retired at age 66. In 2012, that number dropped to just 27 per cent. Clearly, there is a real disconnect between actual and expected retirement ages; suggesting that in recent years, workers have shifted their thinking on retirement and perhaps intend to stay in the labour force longer than at any other point in history.

Although the Liberal government in Canada has now rescinded the previous Conservative government’s decision to raise eligibility for Old Age Security benefits from age 65 to 67, over six years, commencing April 2023, it is interesting to note that other industrialized nations such as France, Germany, Denmark, Belgium, the U.S and the U.K. have or are in the process of increasing the qualification age to 67 and ultimately age 68 in the case of the U.K.

Combine this with the end to mandatory retirement in provinces such as Ontario and one would presume that workers (especially those in white collar professions) will undoubtedly remain in the workforce longer.

Insurers and plan sponsors have slowly responded to this trend to delayed retirement with more liberal termination ages for health and dental benefits by extending termination ages to 70 and 75 upon request. However, this liberalization has not extended to disability coverage beyond age 65. In fact, except in the case of pricier individual special risk disability offerings from firms such as Hunter-McCorquodale, disability coverage beyond age 65 is rare.

Plan sponsors seeking to retain the strong leadership skills, and experience of an aging cohort in a market where millennials dominate (45 per cent of the workforce), have simply had to face the reality that long-term disability (LTD) for workers beyond age 65 is elusive.

Insurers and plan sponsors have not faced a backlash from these same plan sponsors because of rulings such as that from the Ontario Human Rights Tribunal in Kartna v. Toronto (City), [2014] OHRTD No. 387 which confirmed that the termination of LTD benefits for workers beyond age 65 does not infringe the Ontario Human Rights Code. In that case, the ruling from the tribunal upheld prior case law that established in Section 25(2.1) of the Human Rights Code that the right to equal treatment was not infringed by a group insurance plan that complies with the Employment Standards Act. Thus, differential treatment on the basis of age with respect to group insurance is permitted, if the person is age 65 or older. (It should be noted that differential treatment is not allowed for persons between ages 18 and 65.)

Extended disability options

Fortunately, relief is on its way as market re-entrants CIGNA Life and RBC (both had previously reduced their activity in the Canadian group marketplace) have taken the lead in responding to this shift in labour trends and have created disability solutions for workers beyond age 65. In the case of CIGNA Life, their program for groups of 35+ offers LTD with no termination age, as long as an employee is actively at work. Conceivably, an employee who is age 80 could be eligible for disability. The benefit duration is limited of course, based on the age of the claimant at the time of disability, but this product at least provides coverage in a market where no options existed previously.

RBC has also introduced LTD coverage for persons over age 65. This product is available to groups with more than 36 insured lives. Unlike CIGNA Life that does not have a termination age, the RBC product will have a fixed termination age of age 70. Its plan will feature a two-year, five-year and a graded benefit to age 70. Up to age 60, the traditional plan features and provisions will apply. However, at age 60 in the case of the five-year benefit, the maximum benefit duration will be just five years. After age 65, the maximum benefit period would be to age 70.

The RBC “graded design” has one-year age increments above the floor of age 60 and features various benefit durations depending on the onset age of disability, (per the accompanying table).

RBC Graded benefit to age 70

Age of disability Benefit duration
Less than 60 years To age 65
60 years 60 months
61years 48 months
62years 42 months
63years 36 months
64 years 30 months
65 years 24 months
66 years 21 months
67 years 18 months
68 years 15 months
69 years 12 months

This piece is not intended as an endorsement of either the RBC or CIGNA offering, rather it is meant to illustrate the options that are available for a cohort which is still recovering from the ‘financial crisis’, in many cases still has mortgage and consumer debt and faces an uncertain eligibility for government retirement programs.

At this point, it is unclear whether other Insurers will wade into the specialty market for extended disability coverage, but based on demographic trends, there certainly will be growing opportunities for those Insurers that embrace the risk.

Chris Pryce (CEBS) is managing director of Human Capital Benefits and services the medium-large case benefits marketplace.  chrispryce@www.humancapitalbenefits.com

 

2018-04-17T15:54:35+00:00