Abstract illustration representing income continuity and disability insurance

For many professionals and business owners, the ability to keep working is the engine behind most other financial plans. Disability insurance is designed to replace part of income when an eligible illness or injury prevents someone from working, subject to the policy terms.

The useful question is not simply, “Do I have disability insurance?” It is, “How would this coverage work if I actually needed it?”

1. How does the policy define disability?

Definitions can differ between policies and sometimes within the same contract over time. The definition helps determine the circumstances in which benefits may be payable.

Read the wording rather than relying on a label such as “long-term disability.” If you have workplace coverage, the plan booklet or certificate should describe the applicable definition.

2. What is the waiting period?

The waiting or elimination period is the period that generally must pass before eligible benefits begin.

Think about what would cover expenses during that period:

  • employer sick leave
  • short-term disability benefits
  • emergency savings
  • another source of household income

A longer waiting period may fit one household and create pressure for another.

3. What is the benefit amount and maximum?

Workplace plans may express a benefit as a percentage of income but also apply a monthly maximum. Review both.

If income has increased materially since you joined the plan, the maximum can become more important than the percentage shown in a benefits summary.

The Financial Consumer Agency of Canada notes that disability plans can vary in benefit amount, waiting period, inflation adjustments, partial-disability provisions and other terms.

4. How long can benefits continue?

The benefit period can vary. Some coverage is short-term. Long-term disability coverage may continue longer, subject to ongoing eligibility and the terms of the plan.

Do not assume that “long-term” means benefits automatically continue to retirement age or for life.

5. What other income can reduce the benefit?

Some disability plans coordinate with or offset other disability income. Understanding those provisions helps avoid simply adding benefit amounts together and assuming that total would be paid.

6. Who pays the premium?

Premium payment can affect tax treatment of disability benefits in Canada. The Financial Consumer Agency of Canada explains that the tax treatment may differ depending on whether the employee or employer pays the premiums.

Because individual circumstances and plan structures vary, confirm the treatment of your specific arrangement rather than relying on a general rule.

7. What happens when employment changes?

Employer-provided disability coverage may end or change when employment ends. A move from employee to contractor, incorporated professional or business owner can therefore change the protection around income.

That does not automatically mean an individual policy is required. It means the employment transition is a sensible time to review what remains in place.

8. Does the coverage still reflect your occupation and income?

Careers change. Income changes. Responsibilities change. A disability arrangement selected years ago may deserve another look after a promotion, career change, incorporation, new mortgage or major increase in family responsibilities.

A review can also confirm that the existing coverage remains appropriate.

Sources and further reading

This article is for general educational purposes only. Disability definitions, benefits, exclusions, offsets, tax treatment and eligibility vary by plan and individual circumstances.