Emily, a 40-year-old executive in Alberta earning $200,000 annually, maintains group long-term disability (LTD) insurance provided by her employer, who pays 100% of the premiums. She is also considering purchasing an individual disability policy. If Emily becomes totally disabled, what would be the tax implications of her group LTD benefits, and how might this influence her decision on an individual policy?

Question: Emily, a 40-year-old executive in Alberta earning $200,000 annually, maintains group long-term disability (LTD) insurance provided by her employer, who pays 100% of the premiums. She is also considering purchasing an individual disability policy. If Emily becomes totally disabled, what would be the tax implications of her group LTD benefits, and how might this influence her decision on an individual policy?

Answer options:

• Group LTD benefits will be tax-free, making an individual policy redundant. ✅ Group LTD benefits will be taxable, thus an individual policy with personally paid premiums would provide tax-free additional income.
• Group LTD benefits are non-taxable up to $5,000 per month, taxable beyond that.
• Group LTD premiums are a taxable benefit to Emily, but the benefits are tax-free.

Correct answer: Group LTD benefits will be taxable, thus an individual policy with personally paid premiums would provide tax-free additional income.

Explanation: When an employer pays 100% of group LTD premiums, the benefits received by the employee are fully taxable. Purchasing an individual policy with personally paid premiums would provide tax-free benefits, significantly increasing her net disability income and reducing dependency on the taxable group plan.