Disability Insurance

What is disability insurnace?

Disability income insurance, or disability insurance, is insurance you can purchase to guarantee an income should you ever be unable to work due to illness or injury.

With an individual disability insurance policy, you own your coverage. You can seek the maximum coverage amount your individual circumstances allow and add additional top-ups to make it perfectly sized for you. The coverage is yours.  Your cost of insurance will not change unless you increase the coverage amount. And if you pay your own premiums using after-tax income, you will receive the benefits tax-free.

Let’s look at the stats; Canadians are more likely to face a disability than death, during their working lifetime. Protecting your ability to make an income is important. If your ability to earn an income stopped tomorrow, will you be ready to cover your expenses and everyday living? Current statistics show us that 1 in 3 Canadians will have a disability that will last longer than 90 days. 

Disability guarantees an income equal to ⅔ of your monthly income, tax free, with the potential of receiving this amount to age 65. 

While a disability can often be visible to the naked eye, not all disabilities are so easily recognized. Chronic pain or a mental health issue can also qualify as a disability.


 

How does disability insurance work?

  • Choose the amount you want and add optional benefits to customize your coverage.

  • Pay your monthly premium.

  • File a claim if you become disabled.

  • Receive your monthly payments when the waiting period ends. The waiting period is the number of days from the date you’re disabled until the benefit start date.

  • Your payments stop when your benefit period ends or you return to work.

Canadian Disability Insurance Information

There are several payments available for disabilities through CRA. They include Canada Pension Plan Disability, Veteran Affairs Disability and more. 

Canadian Benefits & Services Link


Disability Insurance Servces

 

Long Term Disability Insurance

LTD is available through group insurance. It is typically calculated at 66.67% of your monthly income. It is received tax free when the employee has paid for the disability premium. It is coverage in the event of an illness or accident and payment may be available to age 65. There is an average wait time of 6 months before the benefit pays out. This is dependent on the group plan design.

Short Term Disability Insurance

Because we have EI in Canada, we don’t have STD for individuals. Only available in group benefits. This is a group benefit that pays 66.67 of your weekly earnings, and is received tax free. It is payable on the first day of an accident or hospitalization and payable on the 8th day of an illness. It is also paid for 6 months, which is typically the waiting period for the long term payment to begin.

Disability Insurance For The Self-Employed

Disability policies for self employed should be a part of your portfolio when you are self employed. It serves as a tax free income replacement in the event of a total disability and pays to age 65.

The Biggest Disability Insurance Myths

 

“Disability only happens to other people.”

Disability isn’t just about physical injury: 75% of cases are related to illness. Regardless of your type of employment, you are still at risk. 

Mental illnesses like depression and anxiety are also major causes of disability. Chronic illnesses like cancer, diabetes, heart disease, high blood pressure make it difficult to work for different periods of time. 

In Canada, 1 in 3 workers aged 30 to 64 will experience a period of disability during their career. 

“Disability insurance doesn’t come cheap.”

Disability insurance can be expensive, however the value to having it typically outweighs the cost. 

“My group disability insurance will be enough.”

Having a disability insurance with your employer’s group insurance is fortunate. This may not be enough. Most group plans have a maximum amount of both insurance benefits and time they are payable for. When your group benefit runs out, you are expected to manage on your own. 

Adding a personal disability policy of your own will ensure your financial future is taken care of. 

Top up your coverage with options available under your employer’s group plan, if that’s possible.

“My emergency fund will cover everything.”

Of course, like any responsible worker – especially if you’re self-employed – you set money aside … just in case.

Setting money aside for a ‘just in case’ situation is always a good plan. However, your emergency funds that you put aside should be equal to 3 months of salary. This may not be enough in the case of a long term disability. You’re better off taking out personal disability insurance. You’ll get substantial fixed benefits, generally tax free in this case, and you will be able to meet your financial obligations. 

It may be in your best interest to get a personal disability policy; it will help in the event of a long illness.