What Is Disability Insurance?

Don’t fret, disability insurance isn’t as scary or as complicated as it may seem. Although certain aspects of disability insurance in Canada may appear to be complex, at its core it is very straight-forward. Let us explain.

Disability insurance in a nutshell

If you earn an income and cannot afford to survive without it, then you want disability insurance. Essentially it is designed to replace loss of income you may incur due to a long-term or short-term illness or injury that prevents you from returning to work right away. However, you cannot replace 100% of your lost wages. It may seem silly, after all, if you are willing to pay the premiums to insure 100% of your income, why shouldn’t you be allowed to? The fact is that it creates a very tempting fraud situation. The risk of people insuring their income and then falsely claiming disability is simply too high for insurers too bear, so they cap your coverage limits at 85%.

Individual Disability Insurance vs Group Benefits

Group benefits are those insurance protections provided through your employer. Your group policy may include medical benefits such as dental or optometry coverage, as well as disability insurance. The premiums for these policies are deducted from your regular pay so you never have to worry about making the payments manually.

Individual disability insurance is insurance you purchase of your own accord through a provider, usually a medium to large sized insurance company. Individual coverage can also be purchased by getting quotes and doing a rate comparison through an insurance broker. Brokers can review and compare all the policies from multiple providers that meet your needs and help you decide which is best. The best part is that brokers do this free of charge because they receive their commission from whichever provider’s product they end up selling, so they don’t need to pressure you and have no vested interest in any particular insurance provider.

Remember, you can have group benefits, or individual disability insurance, or a combination of both if one is not enough, but altogether these cannot exceed 85% of your total income before your disability occurred.

In fact, 85% is in your best interest.

It is in your best interest to max out your disability insurance coverage in Canada. If you want to know why, review the example below.

Say you make $4,000 dollars a month and your group benefits only offer a 50% disability benefit, meaning you would have to make ends meet with only $2,000 a month income for however long your disability lasts. This could be months or years. However, if you get an extra 35% coverage from a private insurance provider to top up your group benefit, you would be receiving $3,400 per month, and therefore only losing $600 a month of your usual pay.

Be familiar with the fine print

Sometimes disability insurance policies have limitations, such as the duration of your policy. Your policy under your group benefits may only cover you for injury or illness up to two years, or it may cover you up until a certain age. It is important that you know whether or not your policy has limits, and what they are. The same is true for individual disability insurance, with the exception that you get to choose your policy. Make sure you choose a good policy that suits your budget while still providing the kind of protection you want.

Not so bad right?

See, disability insurance in Canada doesn’t have to be complicated, although there can be a lot to know.