Disability Insurance

Disability insurance, also known as “income replacement” or “pay cheque insurance”, provides a monthly income replacement benefit if you become disabled and can no longer perform the normal duties of your work. A disability may be caused by an accident or illness. It provides coverage that will help you keep up with your financial responsibilities while you focus on recovery.  72% of people think of physical accident injuries when they think of disabilities but less than 10% of disabilities are caused by accidents

Who is this suitable for?

  • A business owner or independent professional
  • Self-employed or a freelancer
  • An employee with little or no group disability insurance

How it works

Most disability coverage is based on earned income, the amount of training required to do your job and the type of job you do (how risky is your job?).  Based on those factors the insurance company groups you into same risk groups.

The premium of your disability insurance is based upon how long you the owner of the policy want the insurance company to pay you for this disability coverage and how long are you willing to wait after the disability starts to start getting paid (referred to the waiting period).

The waiting period is a shared risk between you the owner and the insurance company.  The more risk you are willing to take on the cheaper your premiums. Waiting periods are typically 30, 60, 90, 120 or 720 days.  The 720 days is for people who have a group benefits plan that has disability coverage which mostly only lasts 2 years.

The benefits period is the length of time you want the insurance company to pay you benefits. The typical benefit period is 2 years, 5 years, 10 years or to age 65, depending on the insurance company.

If you’re unable to work due to an illness or accident and you’ve satisfied the waiting period, you’ll receive a monthly benefit based on your regular income – for the payment period you’ve selected.



Frequently Asked Questions about Disability Insurance

Doesn’t the Canadian government provide coverage for disability?

While the Canada Pension Plan (CPP) do include disability coverage, there are considerable limitations to the benefits provided by these plans: For 2016, the average monthly CPP disability benefit is $933.82 and the maximum monthly amount is $1290.81.  This amount is considerably less than what you could receive through a disability insurance plans.  To qualify for the CPP disability benefit, you must sustain a severe and prolonged mental or physical disability and be unable to work at any occupation.  With your own disability insurance coverage from an insurance company, you may be able to receive benefits under a less stringent definition of disability.

I have a disability policy at work. Why do I need another policy?

This answer depends on your employer-sponsored disability plan, so examine it carefully and know what it covers and for how long you have coverage.  Most group plans only cover you for 2 years and if you need it longer than that there is nothing you can do.  Also, typically, an employer-sponsored plan will end when your employment ends. One of the advantages of owning your own disability insurance policy is that you can take it with you if you leave your job or get let go.

Here are some things to look at for your employer-sponsored plan:

  • How much of your income will your employer-sponsored disability plan replace? (Some plans cap the amount you can receive.)
  • Are you covered for illness as well as injury?
  • Are you only covered for accidents on the job, or are you protected 24/7? (WSIB plans only cover you at the job site)
  • Does your plan provide valuable return to work services?
  • How does your plan define a disability? ( There might be exclusions in your group plan)


Once you know the answers to these questions, you may find that you need additional coverage.

How much disability insurance should I have?

Your disability benefits should allow you and your family to continue to live comfortably, as though you were still able to work full-time.  Most typical plans only cover you up to 66.66% of your annual income. There are also thresholds for people that make large annual incomes.

First, total up your monthly “fixed living expenses” such as food, housing, transportation, utilities and other miscellaneous expenses. Subtract from that amount any income you’ll receive from other sources during a disability—for example, from investments you may have, property you rent out and other disability insurance coverage. The amount by which your expenses exceed income during disability is the amount you need. Bear in mind, though, that any disability insurance plan will only replace a portion of your income not 100% of your income.

The purpose of disability coverage is to cover you and your family till you recover from you injury or illness.  If that’s not possible then your coverage should last top age 65.

Who can apply for disability coverage?

You may apply for disability insurance if you:

Meet the age requirements of the insurance company typically Age 18-64

You are working full time

Are a Canadian citizen or permanent resident/landed immigrant

How long will I pay disability insurance premiums?

You will pay premiums through the term of your policy. You do not pay for premiums if you are accepted and on claim.

Will my disability insurance premiums ever increase?

This answer depends on the insurance company and policy. Some plans offer a choice of guaranteed level premiums for the life of the contract and step rate premiums (for age 35 and under), which allow you to pay less while you’re getting your business or career off the ground. With other policies, the Insurance Company does reserve the right to increase premiums. However, they cannot change your premiums unless they do so for an entire group of policyholders sharing similar characteristics.

Are there any exclusions under which I won’t receive benefits, even though I am unable to work and earn?

Yes. Typically, benefits are not paid for disabilities due to the following is a summary of exclusions only:

  • An act of war or accident of war
  • Some Self-inflicted injuries may not be paid
  • Normal pregnancy or childbirth (complications of pregnancy or childbirth are covered)

In addition, the policies won’t pay a benefit for any period during which you are incarcerated.

Are medical questions or exams required to apply for disability coverage?

Typically, yes. When purchasing disability insurance, medical questions and exams are usually required, the extent of which depends on your age and the amount of insurance you request when you apply.