Who needs disability insurance?

If you earn an income, you need disability insurance – especially if you do not have the capacity to be out of work due to illness or any other circumstances for more than a month or two. Few people have enough savings to withstand an income interruption.

What does disability insurance cover?

Basically, it covers a part of the income you lost due to accident or injury, but WSIB/WCB specifically covers work-related accidents while private policies insure you for both work and non-work related incidents.

How much disability insurance do I need?

You need enough to cover your basic living expenses (rent or mortgage, food, transportation). However, it is important to note that disability benefits are always linked to your pre-incident income – and that you can only receive a portion of that income, such as between 50%-85%. It is not possible to insure 100% of your income because this would lead to many incidences of insurance fraud.

When calculating your disability insurance, make sure you know these four important terms:

  1. Benefits as a percentage of income:This is the percentage allowable based on your job classification. It is between 50%-85%, and never higher than 85% of your gross income.
  2. Benefits cap:This is the maximum allowable benefits you can receive based on the policy. For example, your benefit cap may be limited to $1,200 per month. Thankfully, however, with most plans where you are directly responsible for paying the premium, the benefit is provided tax free.
  3. Length of benefits:This is how long benefits are paid to you and is dependent on the terms of the policy and your job classification. Some plans’ benefit length is until retirement while others are just two years provided you can work any job following that time.
  4. Waiting period:This is how long you wait before benefits are paid to you and is typically 30-90 days. However, it can be much longer. The waiting period is also called the time of self insurance because you must have enough funds on hand to sustain yourself between your injury and when your benefit payouts begin.

How much disability insurance can I get?

Whether you have one or several policies, are covered by group, individual, WSIB, or a combination of all three, your payments from all combined sources cannot exceed 85% of your pre-disability income. Based on your income and job classification, your maximum allowable benefits typically range between 40%-85%. If you are collecting from a variety of polices, some will reduce their benefit amount to compensate for the payments you are receiving from other sources.

How does long-term disability insurance work?

Long-term disability insurance is characterised by three distinct phases.

  1. Elimination period: This is the time during which you are self-insured, which is, paying your own expenses without the coverage of benefits. In addition to not receiving benefits during this time, you must be able to prove that you remained disabled during the elimination period. Based on the policy, this can be anywhere from 0-730 days. The elimination period is designed to ensure you qualify for long-term disability, as opposed to short-term, like having a broken bone. Savings or another income sources such as WSIB or EI are necessary during the elimination period.
  2. Long-term disability benefits payments:This is the benefit period, or, the length of time during which your benefits will be paid. Long-term benefits typically pay out for years, and in some cases, until you reach retirement age.
  3. End of benefits:This is when your benefit payments end. It can be triggered by recovering enough to work or attaining retirement age. It can also be triggered by a pre-determined date set in the policy.

How long does long-term disability insurance last?

This is completely dependent on your type of policy, but typically, long-term benefits last until you return to work (not necessarily the position you exited if you can no longer fulfill the requirements of that job due to your disability), when you reach a certain age such as retirement, or when you reach the milestone pre-set in your policy (such as 5 or 10 years on benefits).

How does disability insurance work for the self-employed?

Without access to employer-sponsored group benefits, you must purchase private insurance. As for government benefits, as long as you contribute to Canada Protection Plan-D (Canada Pension Plan Disability Benefit), you can claim it. It is very difficult, however, to quality for the definition of Canada Protection Plan-D. If you paid into Employment Insurance (EI) sickness benefits, you may claim it. If you are low income, there are other options based on your province’s programs.

How does disability insurance work if your employer does not offer group benefits?

If your employer does not offer benefits, you should purchase an individual disability life insurance plan. However, your employer must pay Employment Insurance (EI) and Canada Pension Plan, so you will have access to those programs. Remember, however, that it can be difficult to quality for government/provincial programs so ensure you have private insurance in place, if possible, to defray your risk.

Low income individuals can apply for provincial programs such as the ODSP (Ontario Disability Support Program).

How does disability insurance work if your employer is covered by WSIB

Some industries are mandated to have WSIB (Workplace Safety and Insurance Board) coverage. If this describes your employer, your main disability benefits will be from the WSIB. Your employer may back this up with group benefits too. While WSIB excludes you from EI sickness benefits and some other provincial programs (if you get those while receiving WSIB, you must pay it back), you can still access Canadian Pension Plan. You can also top up with an individual policy, but since you can never collect more than 85% of your total gross income, you may be spending money unnecessarily if you are already covered by WSIB and a group plan.

Bear in mind that some provinces are known for delaying and denying WSIB or WCB claims, causing some unfortunate claimants to wait, and to struggle, for years before payments are made (if at all).

How does disability insurance work if your employer offers group benefits?

If you are covered with work benefits, that is great news! Ensure you know if you have short-term coverage, long-term coverage, or both.

Disability group insurance is typically limited to 24 months and can have fairly low benefit caps. Discuss your coverage with your insurance provider to see if there are gaps that should be filled.