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Disability Insurance Canada

There are many different reasons why people may need to take time off from work, and sometimes that time is not covered by sick or vacation days. This is where disability insurance comes in.

Disability insurance is an income replacement policy that aims to protect your financial well-being in case you are unable to work due to illness or injury. It aims to replace a portion of you’re income while can’t work actively to earn a living.

A disability insurance policy is a type of insurance that provides income in case you are unable to work due to illness or injury. This type of insurance aims to replace around 67% of your monthly income while you cannot work actively and earn money.

Why Should You Get Disability Insurance?

Disability insurance is an important step in managing your financial risks because we live in a world where you don’t get paid if you can’t work.

If you’re on the fence and are researching as to whether or not you need disability insurance, the best way to evaluate whether you need it or not is to look at your monthly living expenses and compute how many months (or years) you can support yourself and family without an active income.

If you suddenly find yourself incapacitated and unable to work, how long can you last without receiving a paycheck? If the answer is less than 6 months, then you need disability insurance.

injured lady with neck brace

What Does Disability Insurance Protect You From?

Disability insurance goes beyond the obvious by safeguarding your wealth and preventing financial hardship in the event of injury or illness. Without this protection, individuals may be compelled to deplete savings, liquidate assets, or dip into retirement funds, potentially leading to insolvency. 

The insurance serves as a crucial buffer, ensuring that one’s financial obligations can be met without resorting to debt or compromising long-term financial security in the face of inability to work.

How Does Disability Insurance Work?

Disability insurance provides essential protection beyond the obvious, safeguarding wealth and preventing insolvency in the face of injury or illness. Rather than resorting to withdrawing savings, liquidating assets, or dipping into retirement funds, which can lead to financial instability, disability insurance ensures the preservation of one’s financial resources.

By avoiding the need to accumulate debt to cover living expenses and financial obligations during a period of inability to work, it acknowledges the ongoing nature of bills and payments even in such circumstances. Overall, disability insurance serves as a crucial safety net, addressing immediate challenges and emphasizing the importance of financial protection in unforeseen events.

What Types of Disability Insurance Policies Are Available in Canada

There are two main types of disability insurance in Canada, and they are as follows:

  1. Short Term Disability Insurance
  2. Long Term Disability Insurance

Short Term Disability Insurance

Short Term Disability Insurance policies provide short-term income protection. Most group insurance plans have short-term coverage built-in. If you have short-term insurance coverage at work, one thing you have to look out for is how long the elimination or waiting period is. This is important because say your group plan has a waiting period of 90-days, you may find yourself in a situation where you have a short-term disability and without income for 90-days.

Depending on your situation and where you’re injured, you may be able to claim employment insurance or WCB but of course, why risk it?

It’s better if your short-term disability insurance has a shorter waiting period, so if you can’t claim from EI or WCB, you know that you have income while you’re recovering from a short-term disability.

Long Term Disability Insurance Coverage

Long-term disability insurance is different from short-term disability insurance because it provides a source of income for a longer amount of time of between two years and age 65.

Whenever I plan for disability insurance, I prefer giving the client a policy that provides disability benefits to age 65 on a regular occupation definition. In the case of permanent disability, there’s no guesswork because you won’t find yourself in a situation where your benefits stop because you’re considered to be able to perform any other jobs even if you can’t work your regular occupation.

What Should I Consider When Buying Disability Insurance?

soft tissue injury - wrist

When purchasing disability insurance, the key consideration is qualification, requiring good health and the ability to work at least 20 hours a week. It’s emphasized that insurance should be obtained proactively to avoid complications arising from illness or injury. An analogy likens this proactive approach to getting an umbrella before it rains.

The complexity of disability insurance lies in its various definitions, clauses, and occupation classes. Many mistakenly assume they’re covered through workplace plans, but having a group plan doesn’t guarantee disability coverage. It’s crucial to scrutinize the group benefits manual for specific terms like “regular occupation,” “any occupation,” and “cancellable.”

The recommendation is to opt for long-term regular occupation coverage, ideally until retirement age, providing flexibility in managing a disability without being forced back into the workforce. Many group policies shift from covering regular occupation for 1-2 years to “any occupation” afterward, underscoring the importance of understanding the details of disability coverage.

Any Occupation

The disability insurance definition for “any occupation” states that you will only receive benefits from your disability insurance policy if the injury or illness stops you from working any occupation that you are reasonably qualified for based on your education or experience.

Non-Cancellable

Ideally, your disability insurance should be non-cancellable. This means the insurance company can not cancel, increase the premiums, or reduce benefits for the life of the policy or coverage period, allowing you to keep your coverage after you make a claim.

Cancellable

Cancellable, on the other hand, allows the insurance company to make changes to an already existing policy, especially after you make a claim.

Group vs Individual Disability Insurance

man suffering from backpain

Group Disability Insurance

A group disability plan is typically provided by an employer. As mentioned, most Canadians refrain from getting individual disability insurance because they think that they’re well covered at work.

While some companies would really look after the benefits of their employees, most would only provide you with the most cost-effective group plan that’s why it’s very important to read your benefits manual and look for the definitions mentioned in previous sections of this article.

Individual Disability Insurance

Individual disability insurance is available to all adult Canadians who would like to get solid disability insurance protection, especially in case of a prolonged injury, incapacity, or illness.

You have better control of your disability insurance coverage with an individual plan compared to a group plan because you’re the major decision-maker, not your company or its management.

It’s worth mentioning, however, that some benefits may not be available to you depending on your occupation class. If you want to take a look at what kind of benefit your occupation class can get, you can book a quick appointment with us here, and we’ll help you plan solid individual disability insurance that you can qualify for.

Is Disability Insurance Right for You?

If you need to go out there and work (even just to your home office) to make a living, you need disability insurance. If you have income even if you’re not actively working, you need not implement disability insurance.

Most Canadians actually need disability insurance, some have some sort of coverage through work but is usually not enough.

If your income has the tendency to stop if you can’t work actively, then you should definitely get disability insurance coverage.

Which type and how long, will have to depend on your preference, need, and budget. Ideally, you should have coverage up to age 65, so you need not worry about when the next paycheck is going to come or be forced to work other jobs you don’t know anything about because your coverage stopped.

How To Apply For A Policy

sick patient

Financial security advisors, also known as insurance agents or brokers, specialize in helping individuals manage financial risks and build wealth through passive investing. To apply for a disability insurance policy through them, you can book a discovery appointment online. The application process involves filling out a form, determining the income you want to protect, assessing risks based on lifestyle, health, and occupation, and establishing the qualifying amount.

This process is conducted through an in-person meeting or web conferencing, where an interview takes place, and the application form is signed by both parties. Confidential financial information is also required to complete the application. To initiate the application, you can book an appointment through the provided link.

Why Should You Get Individual Disability Insurance?

The main purpose of disability insurance is to protect you against financial burdens by providing income when you can’t work.

Should you find yourself unable to work for money, will your income continue? If your answer to this question is “NO”, then you need disability insurance.

This is perhaps the strongest reason why you should get individual disability insurance, especially a long-term one!

How Much Is Disability Insurance In Canada?

how much does it cost

The cost of disability insurance in Canada is influenced by factors such as coverage amount, policy type, duration of benefits, and the waiting or elimination period. For employed individuals with existing short-term disability coverage or eligibility for Employment Insurance (EI), extending the elimination period to 90 days is advisable, as government and group benefits typically take precedence. Self-employed individuals, however, may opt for a shorter waiting period to start receiving benefits sooner.

Providing an exact cost is challenging due to potential rate changes and variations between occupation classes. Disability insurance premiums and policy eligibility differ widely. The most accurate way to determine your premiums is by requesting a personalized disability insurance quote tailored to your specific situation. 

Online applications are cautioned against without advisor consultation, as they often provide basic coverage for a limited duration and may only offer quotes for injury coverage. Having an advisor helps navigate the complexities of disability insurance, allowing you to customize coverage based on budget considerations or opt for comprehensive protection.

Book a Disability Insurance Consultation

Book an appointment with us here for a non-obligatory, and no-pressure consultation.

Book an appointment here.

What Conditions Qualify for Disability In Canada?

Depending on the type of coverage you have in your disability insurance policy, you can claim for either injury or any type of illness that prevents you from doing what you do to earn a living. This goes without saying of course, that your doctor agrees with you.

Since everyone has their own judgment of what is considered ‘injury’; a doctor’s statement certifying that you are indeed unfit to work supports a valid claim. In addition to this, it’s also required that you are under the care of a physician.

cancer patient

How long does Disability Insurance Benefit last?

The term of your disability insurance policy may vary depending on the type of plan you choose, but some policies offer monthly benefits for up to two years or until the age of retirement (depending on your chosen coverage at the time of application). Long-term individual policies typically offer benefits for up to five years or until the age of retirement.

Plan premiums for disability insurance generally increase with age because older applicants have a higher risk of being unable to work due to illness or injury. That’s why it’s wiser to apply for coverage while you’re younger so you can lock in your rates with a non-cancellable policy.

I personally suggest that you get coverage that provides regular occupation benefits of up to age 65 to hedge against the possibility of having a permanent disability.

Short-Term vs Long-Term disability insurance

Short-term disability insurance benefits typically last up to 6 months with some lasting up to 1-year while you’re recovering and are unable to work. Most group policies have short-term disability coverage, and if you’re looking for more robust coverage, you should get an individual long-term disability coverage that continues your benefit period in case of prolonged injury.

short term vs long term

How much Disability Insurance do I need?

You can get $10,000.00 a month of disability benefit, of course, if that’s around 67% of your active income and you actually don’t mind fielding the premiums for such a high coverage amount.

Seriously though, you can typically qualify for up to 67% of your annual income. So, say you’re earning $5,000.00 a month, you could qualify for up to $3,350.00 of monthly disability benefits.

Is Disability Insurance Taxable in Canada?

Individual disability insurance benefits are generally non-taxable since you’ve paid the premium with after-tax dollars. If your business paid for your premiums and claimed on as business expenses, your benefits may be subject to tax. For employees who are covered with group disability insurance where their employers paid for the premiums either in part or in full, disability insurance proceeds are taxable, since the portion of the premium that your employer paid was claimed as business expenses in the company’s tax filing.

The Best Disability Insurance You Can Get in Canada

The best disability insurance in Canada is one that protects your income against both injury and illness.

Note that the illness definition within the realm of a disability insurance policy does not refer to a life-threatening illness that is covered by critical illness insurance. The illness coverage in a disability insurance policy could be a serious illness but it can also be any illness that prevents you from actively working for income.

If you’re looking to implement the best disability insurance you can get in Canada, you have to pay special attention to the “regular occupation” benefit. Most group disability insurance plans would only cover employees between 1 to 2 years for regular occupation, afterwhich, you’ll only be covered with “any occupation”. This means that if you can work any other type of work, your benefits stop.

The best disability insurance provides long-term regular occupation coverage, ideally up to age 65, in case you would ever have to deal with a permanent disability.

The best of the best, however, would continue paying benefits even if you’re working another job based on the “own occupation” definition but not everyone would qualify for this policy. If you’re a doctor, lawyer or someone who a professional designation (i.e., letters after your name, like MD, CPA, etc), you may qualify for this type of coverage.

Is Disability Insurance Worth It In Canada?

Having disability insurance is crucial for unforeseen situations like prolonged illness or injury hindering your ability to earn a living. It’s an often-overlooked aspect of financial planning, equivalent in importance to investments. While some may question the value of insurance without a claim, the risk of needing to make a claim in the future underscores the importance of disability insurance. As a financial security advisor, it’s considered a worthwhile investment, providing a safety net in case you’re unable to work and ensuring financial stability for ongoing expenses.

is it worth it

Apply for Disability Insurance

Disability insurance safeguards your household’s income in the event of a permanent disability or serious injury. Short-term coverage lasts up to one year, while long-term coverage extends until age 65. The optimal type of disability insurance covers both injury and illness, providing 67% of your monthly income during your inability to work. Planning ahead is emphasized, and a free consultation is offered to help choose coverage tailored to your needs and budget.

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