Matt Hands, VP, Insurance and MoneySense
If you're anxious about what happens if you can't work due to an injury or illness, then buying disability insurance will put you at ease. While most people recognize the need for life insurance, many don't understand what disability insurance is. Consider what happens following a car accident, or you're told to "take it easy" after a heart attack, or the debilitating after-effects of chemotherapy treatment - if you can't work, the income stops, but the bills don't.
Below we explain the differences between short-term disability and long-term disability insurance in Canada, how long it lasts, how much it costs, and whether it's right for you.
Disability insurance helps protect you and your family due to a sudden and unexpected illness or life-altering injury that makes it impossible to work and earn an income. Depending on your policy, it replaces between 60 – 85% of your income, up to a specified amount, for a defined period.
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Each insurer defines disability differently. The most significant difference is between “any occupation” or “own occupation,” so make sure to get the one suitable for your needs.
Any occupation means you only receive disability benefits if you’re unable to work in any capacity. Essentially, you won’t qualify for benefits if you can do a different job based on your training, education, and experience. For example, if you’re normally on the sales floor of a busy retail shop, but chemotherapy makes it too exhausting, they could make you sit behind a cash register instead.
Own occupation means you'll receive benefits if you can't return to the job you had before the injury or illness. Often, own occupation plans are purchased individually and more expensive.
Consider “own occupation" if you work in a specialized field, which would require a significant reduction in pay to work in another occupation.
Your premium will typically range between 1-9% of your salary, depending on several factors. Life insurers will consider the following when determining the price to offer you for disability insurance:
- The amount of coverage you need
- The length of the waiting period before payments begin.
- The duration of payments (i.e. how long you want to receive payouts)
- Your age, general health, and occupation
Unlike auto & home insurance, where you live is less of a determining factor in the price you receive from an insurer.
Disability insurance pro tip:
The longer your waiting period before coverage begins, the cheaper your disability insurance price will be.
Get a long-term disability insurance quote.
The simplest way to calculate how much disability insurance you need is to multiply your after-tax income by the number of months you estimate you'll need coverage. However, much like life insurance, deciding how much disability insurance you need depends on many things.
- Personal Lifestyle - How much does it cost for you to live? If you become disabled, how far are you willing to cut back to survive on less income.
- Family & Dependents - How many people depend on you financially? Are you married? Do you have kids? What about your parents?
- Employment Status - Would you be willing to change jobs for lesser pay?
- Debts & Savings - Who could make your mortgage or car loan payments and handle the recurring bills once your regular paycheque stops coming in? How long will your savings or emergency fund last? Do you have other investments from which you could pull money to last a little longer? What happens after you wipe out your savings if your disability lasts a long time?
Individual insurance plans
Group insurance plans
Special purpose plans
Government plans (WSIB, CPP, or EI)
Get a short-term disability insurance quote.
Seek clear definitions on what qualifies as a disability, what exclusions exist, and if you have a pre-existing condition, be sure there are no exemptions.
Analyze the money
How much does it cost, and how will you pay? What percentage of income is paid out to you, and if there is a dollar limit. Who coordinates your payments among the other plans that you might have available. Do you still need to make payments while claiming disability?
Can you increase your coverage, and if so, does it require a medical exam?
Are benefits taxable? How long do you have to wait until you start receiving the benefits following a claim?
The fine print
Are there terms and conditions when you renew? Is it guaranteed renewable? Or, if you’re buying into a group policy at work - do you have the option to continue coverage if you leave the job until you find new coverage?
Are disability insurance premiums tax-deductible in Canada?
Can you get life insurance while on disability?
Is mortgage disability insurance worth it?
Does term life insurance cover disability?
What is key-person disability insurance?
How long does long-term disability insurance last?
How long does short-term disability insurance last?
Matt Hands, Business Director of Insurance
With 6+ years of experience at Ratehub.ca, Matt’s focus has been on growing its newest business unit, Insurance. He is a thought leader and a valuable resource to respected publications across Canada. read full bio
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