Do I need to buy mortgage insurance?

No, mortgage insurance is not mandatory to qualify for your mortgage. But your lender making it seem like it is. That’s because it protects them—not you.

However, it is smart to consider protecting the outstanding balance of your mortgage. A term life insurance policy that matches your mortgage term is a cost-effective way to protect your mortgage debt.

Read more about if life insurance is mandatory to qualify for a mortgage.

Mortgage insurance alternatives

Term life insurance can provide the same security as traditional mortgage insurance. This alternative is referred to as mortgage protection insurance. It is usually a more affordable option and provides more flexible coverage.

How to cover a mortgage debt with life insurance

Protecting a mortgage with life insurance works by getting term life insurance that is in force during the amortization period of your mortgage.

Your beneficiaries are entitled to a tax-free death benefit that never reduces and can be applied to whatever they choose through mortgage protection insurance.

Private mortgage insurance, as it is sometimes called, offers the same security throughout the riskiest years of your mortgage loan, with several additional benefits not offered by conventional loan:

• You can get coverage well beyond the amount of your mortgage balance
• You get to pick your own beneficiary, instead of paying for insurance to protect the lender

Learn more about mortgage protection through term life insurance.

How much mortgage insurance do I need?

How much mortgage coverage you need depends on the value and cost of your home and several other facts. Unfortunately, you don’t get much of a choice if you go through your lender – the coverage amount is tied to the value and term of your mortgage loan.

However, life insurance allows you to cover your mortgage loan balance and many other financial needs, including:

• child care
• education costs
• your family’s future living expenses
• funeral expenses
• anything your beneficiaries wish

Our insurance calculator can help you find out exactly how much coverage you need.

Learn more about how much life insurance you need.

Why is mortgage insurance expensive?

Lender-provided mortgage insurance is expensive because there is no underwriting. Underwriting is the process an insurance company goes through to determine the appropriate fees for taking on the financial risk of your death.

Without this stringent evaluation process, they are more blindly taking on the financial risk of your policy paying out.

Read more about why mortgage insurance is so expensive.

Why is life insurance cheaper than mortgage insurance?

Term life insurance is cheaper than mortgage life insurance because it goes through full underwriting. If insuring you is less risky, then your monthly premiums are less expensive.

Learn more about the cost of life insurance.

How much does mortgage insurance cost?

The cost of mortgage insurance can be 2-4 times as much as a term life insurance policy. In the below table, you can see just how affordable term insurance can be.

Learn more about how to save money on mortgage insurance.

Frequently Asked Questions

Is mortgage insurance guaranteed?

No, mortgage insurance is not guaranteed. With lender-provided insurance coverage, the claim is evaluated at your death to see if there is any reason why it should not be paid out. For instance, if you had a health condition at the time of getting a policy from your lending institution and it was not disclosed, they will most likely not payout.

Alternatively, term life insurance offers guaranteed coverage. This means a much higher probability of a payout without any hassle.

Do mortgage insurance premiums reduce as you pay off your mortgage?

No, even as your mortgage loan reduces over the mortgage term, you still pay the same original insurance premium. Essentially, the policy’s value diminishes over time. It will never be more valuable than in the first few years of your mortgage, despite you paying the same mortgage insurance premium throughout.

How do I pay for mortgage insurance?

With traditional mortgage insurance provided by your bank or mortgage lender, the premiums are built into your monthly mortgage payment and tied exclusively to your mortgage contract. Although your mortgage and coverage decrease over time as you pay off your mortgage, your premiums will remain the same, if not increase.

But private mortgage insurance (mortgage protection insurance or term life insurance) from a third party is an insurance contract separate from your mortgage. This means you pay your monthly premiums separately from your mortgage payment. Additionally, if you move or change the terms of your mortgage, your policy stays in force. In other words, a private mortgage protection policy is portable.

Can I cancel my mortgage insurance?

Yes, you can cancel mortgage insurance. However, like with all insurance plans, we suggest you don’t cancel it unless you have alternative coverage ready to replace it.

What happens to my mortgage insurance if I sell my house?

If you sell your house, your lender-provided mortgage insurance is tied to the lender. When you sell your house, switch mortgage providers, or do anything else that ends your relationship with that particular lender, the corresponding mortgage insurance policy is cancelled.

Term insurance offers consistent protection throughout your housing situation. The agreement is separate from your property.

Does my beneficiary have to spend the benefit on the mortgage?

With the lender-provided option, you don’t have any say in the matter. Once the policy is activated, all transactions are handled by the suits at the bank or lender’s office until they deliver a deed to your family or estate.

Term life insurance instead gives your beneficiary the freedom to do what they want with the payout. They may want to pay off the mortgage or use the funds on other needs at that time. Ultimately, you are leaving them the choice.

Where do I get mortgage insurance?

You can only get mortgage insurance from the lender who provided your mortgage loan.

However, term insurance is available from several companies nationwide and the expert advisors at PolicyAdvisor have reviewed them all. We can help you find the best provider to protect your mortgage and make insurance part of your financial plan. Contact us below for advice on protecting your foray into the real estate market, or other needs like critical illness insurance or disability coverage.

Learn more about the best life insurance companies in Canada.

Disability insurance is essential to protecting you and your family. It can replace a major loss of income if you are injured or ill and can’t work. However, as important as this protection is, nearly half of Canadians still don’t have any disability insurance. 

Some employers provide short- and long-term disability insurance as a workplace benefit. However, the number of Canadians with disability coverage from their workplace declined from 57% in 2015 to 48% in 2018, as employers tighten their belts (source: RBC study). Without this employer coverage, Canadians can be left struggling to pay their bills and survive off savings — but this is where private disability insurance comes in. 

If employers do offer coverage, they likely offer short-term coverage, so most already know the basics of this short-term disability. This article discusses long-term disability insurance in-depth—a coverage that most often benefits from buying independently owned policies. Read on to learn about what long-term disability is, how it works, the difference between employer individual plans, and what disabilities commonly qualify for coverage.

What is long-term disability insurance?

Long-term disability insurance protects against major losses of income from persistent, ongoing health issues by providing a partial income replacement—typically, this benefit replaces 50 to 70% of your regular income. Coverage for long-term disability benefits usually begins right after a short-term disability period is over and can last for two to five years. However, some policies cover individuals until they’re 65. 

Long-term disability insurance provides peace of mind. You know if an accident or circumstance could leave you unable to earn an income, the policy can replace most of your earnings. This way, you can recover or manage your situation without worrying about your and your family’s financial needs. Common disabilities that trigger the need for a disability payout include cancer, mental health issues, musculoskeletal problems, and other physical disabilities resulting from accidents. 

So, suppose you get into a car accident, and you’re permanently unable to return to your full-time job. The benefits of a long-term disability insurance plan could provide a percentage of your income for a pre-determined number of years, usually two to five years or possibly up to age 65. 

Individuals typically use a private long-term disability policy to supplement employer-provided disability insurance. However, in most cases it’s usually more beneficial to take a stand-alone individual plan as the coordination of benefits may cause you to pay double the premium for minimal coverage. 

For example, your employer policy may cover 50% of your income for two years and your individual plan may cover 60% for up to 5 years. This doesn’t mean you’ll get 110% income coverage in the first two years. The employer plan will take precedence covering 50% of your income, then when the two years are up, the individual plan will cover the final three (making sure you get coverage for 50% of your income for a total of five years. In other words, you can’t stack your coverage, you can only coordinate.

There are also options outside of private long-term disability insurance. Federal and provincial governments provide programs like Employment Insurance (EI) and Canada Pension Plan (CPP). Workers Safety Insurance Board (WSIB) also provides supplemental income if you suffer a long-term disability due to a workplace incident. Lastly, your workplace may have group benefits that offer long-term disability insurance. 

These other options aren’t perfect, however, and many use individual long-term disability insurance to make up for the shortfalls. For example, EI can provide some income relief, but applicants must fall into specific criteria to receive payments. WSIB, on the other hand, only provides a benefit if you’re injured in the workplace on the job. This is why individual long-term disability insurance is vital. Individual policies let you customize your coverage, so you can choose how much income you want to cover, the length of coverage, the waiting period before coverage starts, and the company you want to pay premiums to.

How does long-term disability insurance work?

You get long-term income coverage in exchange for the premiums you paid while you could work. This usually costs between one to three percent of your annual income. You are no longer required to make premium payments once your benefit period starts.

Learn more about the cost of disability insurance.

It’s important to note that long-term disability policies have a waiting period, also known as an elimination period. This is the time between the start of your disability and the beginning of your payment period. Waiting periods can be 4, 8, 12, 16, 20, or 52 weeks — the longer the waiting period, the lower your premiums. This is because your disability might recover before the end of the waiting period. If so, you can return to work, and there’s no longer a need for long-term disability payouts.

During the waiting period before your long-term coverage begins, you may have short-term disability benefits kick in. The significant distinction between short- and long-term disability insurance is that short-term disability insurance considers a benefit payout period in weeks. In contrast, long-term disability insurance considers the benefit period in years. 

It’s important to remember that, due to the customizability of long-term disability policies, each plan differs in scope. For example, some policies may not cover mental health problems, despite it being a common long-term disability. Every policy will include its defined category of what a “disability” is. 

Any occupation vs regular/own occupation plans

Long-term disability insurance is categorized into “any occupation” and “regular or own occupation” plans. Any occupation plans only allow you to receive disability benefits if you’re entirely unable to work — i.e., your illness or injury means you can’t perform the duties of any job you’re reasonably suited for. 

For example, suppose you work as a cashier at a grocery store. You suddenly can’t perform cashier tasks, which require long periods of standing, due to an injury. In this case, you might still qualify to work as a store greeter, which can be done sitting down. You then wouldn’t be eligible for your policy’s disability benefits because you’re able to work another reasonably suited job despite your injury. 

A regular or own occupation plan means that an inability to perform the primary duties of your role qualifies you for disability benefits. So even if you could still work another job, you would receive benefits if you’re unable to perform the role you had before the injury or illness. 

Some insurers will end or reduce benefits, however, if they discover you begin working another role. We recommend own occupation plans for individuals with specialized professions that would require a significant pay cut if they chose to work in another field.

How long can you get long-term disability benefits from work?

Long-term disability insurance administered through your employer functions similarly to individual long-term disability insurance. A plan might provide two to five years of payouts or provide the benefit until your retirement age. 

However, you might not have the option to choose the benefit period for an employer-sponsored plan. An employer is typically selecting the benefit period instead. If the selected period doesn’t work for your circumstance, it might be beneficial to look into private insurance.

Employers may also give employees the option to upgrade their work policy. But doing so can come at an additional cost. For example, suppose your employer-sponsored long-term disability plan pays 50% of your income for five years after a 120-day waiting period. The plan might have an upgrade option, where, in exchange for a $50 bi-weekly paycheque deduction, your employer’s long-term disability insurance now offers a benefit of 65% of your income until you’re 65 after a 120-day waiting period. 

Again, each long-term disability insurance plan is unique. It’s critical to comb through the terms of your workplace insurance policy to understand how long benefits would remain if you could no longer work. You should also consider whether the benefit is enough to pay your usual expenses. At PolicyAdvisor, we’re happy to look at your existing policy to ensure you’re adequately covered. 

If you need additional coverage, we can help you look into an individual long-term disability policy. Having an individual plan lets you go outside of your workplace plan’s limitations. You can choose your own waiting period, coverage period, and benefit amount with an individual plan. 

Group plans vs individual plans

Below are some high-level differences between group and individual long-term disability plans:

It’s critical to highlight that the application process for the two plans can be substantially different. The application process for individual plans is similar to life insurance. There’s an underwriting process where the insurer evaluates your risks depending on medical history, questionnaires, and medical examinations. They also need to verify your income level and work credentials since your benefit amount is based on these factors. 

In contrast, group plans have a more accessible enrollment. Group plans might forego the whole underwriting process. However, insurers providing group plans are beginning to add employee health questionnaires to exclude risky individuals. Group plan insurers may also include exclusions for pre-existing conditions. 

This emphasizes the importance of understanding what’s included in your workplace insurance policy. You may discover your employer-sponsored long-term disability insurance is inadequate and buy an individual plan to supplement it.

Is life insurance the same as long-term disability insurance?

Long-term disability insurance and life insurance are quite different. Life insurance is a legal agreement with your life insurance company to pay a designated beneficiary a tax-free lump sum amount upon your death. 

Thus, the two main differences are: 

• Life insurance is paid in a lump sum to your designated beneficiary, while long-term disability insurance is a periodic benefit payment to you.
• Life insurance payouts trigger on your death, while long-term disability payouts trigger after the waiting period after you face a disability.

Overall, disability insurance aims to cover your daily expenses when you can no longer earn an income. In contrast, life insurance provides your beneficiary, often your spouse or children, with a lump sum payment to cover funeral costs, debts, and other expenses after your death. 

However, some life insurance policies offer a disability rider. This is essentially an add-on to life insurance coverage to accommodate the possibility of a disability. There are two key types of disability riders:

• Disability Waiver Rider: Eliminates life insurance premium payment requirements if you acquire a permanent disability
• Extreme Disability Rider: Pays out a portion of your life insurance benefit if you face a permanent disability

Although life insurance can accommodate disabilities through riders, it doesn’t replace a long-term disability policy. Riders don’t provide the flexibility and customizability that an individual long-term disability policy has. Riders also offer less protection, as it only pays out a portion of your life insurance benefits and doesn’t provide any ongoing income replacements.

What illnesses qualify for long-term disability?

Long-term disability insurance covers scenarios when you can’t work due to an illness or injury that remains after the policy’s waiting period. At this point, your short-term disability benefits are usually over. Such a disability might result from mental health complications, accidents, or illnesses such as cancer. 

The policy won’t cover work-related or on-the-job injuries. These are managed by WSIB. 

Examples of long-term disabilities that qualify for coverage

Suppose you’re at a dinner party. Your hand feels a sudden paralysis, and you accidentally drop a wine glass. You continue to feel muscular weakness and pains and finally visit the doctor. After numerous tests, you discover you have Multiple Sclerosis (MS). MS eventually leads to an inability to walk and adequately use your legs.

After the diagnosis, you may begin to use sick days from your job at a furniture warehouse where you constantly move heavy items. After a week, you run out of sick days and move to short-term disability benefits. You might also receive EI and CPP disability benefits at this point. After 16 weeks, you transition from short-term disability and EI benefits to long-term disability benefits, which replace most of your prior income. The benefits continue until you reach 65. 

Another example could involve mental health issues. If you suffer from severe depression and cannot work, you may go through similar motions as the previous example. However, suppose in this scenario, you recover and better manage your depression after three years. In this case, your long-term disability benefits would stop once you’re well enough to return to work. 

Other common illnesses and injuries include: 

• cardiovascular disease 
• stroke
• cancer
• major car accidents 
• arthritis 
• mood disorders, including bipolar, anxiety, or depression
• PTSD
• mental health problems
• back injuries
• fractures
• head or brain injuries (concussions)
• brain injuries
• arthritis, rheumatoid arthritis
• diabetes
• nervous system disorders and seizures
• multiple sclerosis
• lupus
• fibromyalgias and chronic fatigue syndrome
• infection
• gastrointestinal illness (Crohn’s, colitis, irritable bowel syndrome, diverticulitis)

Does anxiety or mental health issues qualify for long-term disability?

Anxiety and mental health issues are some of the top reasons that people claim their long-term disability policies. However, each insurer and their plans are unique. Some cover mental health illnesses while others don’t. 

As medical experts diagnose and recognize mental health issues on the same level as physical illnesses and injuries, more insurers are including conditions like anxiety in their disability coverage. There’s no guarantee that a policy covers mental health — some might require additional premiums to cover it or cite someone’s mental health history to exclude mental illnesses from the scope of the policy. 

A policy’s scope can also account for the severity of the mental illness. Severe depression involving a medical diagnosis and drug treatments might justify a long-term disability payout. However, long-term leave from work due to stress may not necessarily trigger a policy’s coverage.

Should you get a long-term disability plan?

You need to think about your unique personal and family situation when deciding whether to buy long-term disability insurance. Consider the following: 

• How much income will you need to replace if you can no longer earn a salary from your job?
• Could programs like EI or CPP or your workplace group disability insurance fully cover your expenses?
• Do you need to purchase additional coverage to make up the difference between what you currently earn and any income you’d receive if you faced an injury, accident, or disability?

These questions are challenging to answer. It might help to work with an insurance advisor to determine what type of long-term disability coverage you need. PolicyAdvisor’s expert advisors can suggest an individual long-term disability policy and match you to an insurer that fits your needs. 

Schedule a call with one of our experts today. We can ensure you and your family are protected if you ever face an illness, accident, or injury that leaves you unable to work.

Who sells disability insurance?

Many insurance companies also sell disability insurance products, and there’s one quick, simple marketplace that lets you compare them all.

Disability insurance is an important part of your insurance portfolio, along with life and critical illness insurance. If you can no longer work due to an injury or illness, disability insurance provides you a living benefit—it’s income replacement for when you’re down and out. 

So, what’s it going to cost you? There are different types of disability insurance, different cost influencers, and even employer benefits to consider. We’re here to demystify how much disability insurance can actually cost, looking at what the insurance covers, how much you can expect to pay in premiums, and why it’s worth it!

What are the different types of disability insurance?

Before we dive into the numbers, let’s define the types of disability insurance available to you.  There are two main types of disability insurance you should know about: short-term disability and long-term disability coverage. The two are not mutually exclusive, as long-term disability insurance usually follows short-term coverage.

Short-term disability insurance (STD) is a policy that temporarily covers the loss of income due to accident or illness. Short-term disability…

• Provides coverage for short periods of time, typically 1-6 months
• Some policies may extend coverage for up to a year  
• Usually offered by employers to their workers, with coverage extending from 70-100% of your income

Long-term disability (LTD) provides protection from loss of income for longer-lasting health problems. Long-term disability…

• Kicks in after the short-term coverage period has ended
• Has a variable coverage period depending on the policy in question
• Typically covers 2-10 years, or up until retirement age (65 years)
• Coverage usually from 50-70% of income
• Is most commonly claimed for longer duration mental health afflictions or physical health concerns (cancer treatment, musculoskeletal issues and injuries from accidents, etc to name a few)

Often, short-term disability insurance plans are integrated with long-term disability, providing coverage during the LTD waiting period. The waiting period (aka Elimination Period) is the period of time between the start of your disability and the start of the benefit payment period. During the waiting period, you are paying for your needs out-of-pocket. Most long-term disability policies will allow waiting periods of 30, 60, 90, 120, 180, and 365 days, although 90 or 120 days is the most commonly selected period. 

The longer your waiting period the lower your premium. Why? Most disabilities are resolved within the first few months (such as broken bones, back issues, short-term illnesses); the longer the waiting period, the less likely an insurer will have to start paying out on a claim.

How much of your income does disability insurance cover?

If you lose the ability to work due to an illness or injury, short-term disability insurance will typically cover between 70% and 100% of your income, up to a maximum amount or until your coverage period expires.  After your short-term coverage and waiting period are up, Long-term disability income typically covers between 50-70% of your gross income.

It is also helpful to know that supplementing the disability coverage you get through employee benefits with an individual policy will not double your coverage: you will still only be entitled to the coverage you are eligible for based on your income level. In other words, insurance providers will coordinate so that your disability insurance income does not exceed what you are eligible for (usually a maximum of 80% of your income). 

That being said, if your employee disability insurance does not provide sufficient coverage, it may still be worthwhile to top up with a private policy or opt strictly for an individual policy where you get to determine coverage and premium plans.

How much does short-term disability insurance cost per month?

Like life insurance, where cost is partially related to the size of the benefit you buy, disability insurance coverage is also determined by other factors, like age, health status, and gender. However, the cost calculations differ in that the disability insurance benefits you receive every month is relative to your original income. 

Additionally, what is more likely to be influenced by the policy cost is how long your disability coverage lasts and how broad-reaching the definition of “disability” is. We’ll touch on this more below.

Many short-term disability policies are offered through employer benefits, meaning that employees pay little to nothing in premiums. Instead, the premiums are usually deducted directly from their paycheques, if any. 

Generally, the cost of an STD insurance policy is highly dependent on your salary. Because disability insurance pays out a portion (between 50% and 100%) of your income, premiums costs vary significantly. Among the cheapest options for short-term disability insurance are injury-only policies (which exclude illnesses) that can start around $10/month. However, it will truly depend on what your employer offers—your work may have set up a specific group rate with the insurance provider. For private policies, it’s best to get an individual quote based on your income replacement needs.

How much does long-term disability insurance cost per month?

Long-term disability premiums tend to range between 1% and 3% of your income, making it one of the most affordable and effective insurance products for income protection. 

Thus, a person making $40,000 (before taxes) can buy a long-term disability insurance policy for a monthly benefit of $2,500 per month for as little as $24/month (2 year benefit period) or $43 per month (coverage to age 65). At $100,000, premiums will be upwards of $80/month. In short, the higher the monthly benefit, the higher will be the premiums. However, there are of course other factors that contribute to the price as well (see the below chart). 

For individual plans, the cost will vary depending on policy length, coverage, and your insurance needs. Here is one example of what individual long-term disability insurance may cost.

If you have a long-term disability insurance policy through an employer, you will pay substantially less in monthly premiums. In the Government of Canada disability insurance plan, for example, the government covers 85% of the premium costs, while the insured employee pays the remaining 15%. For an employee earning $45,000, the employee’s monthly contribution is $15.75 per month. 

Some employers may offer long-term coverage in addition to short-term packages. However, it’s important to keep in mind some employer benefits have very strict definitions of disability, choosing to opt for the cheapest insurance plan to save them money. 

For example, many work plans choose an “any-occupation” definition of disability. This is the most stringent definition of disability that can be covered in a disability insurance policy. Under this type of policy, you may be ineligible to receive benefits if you can work in any other job. You may not even be working, but if you are deemed to be able to work, you will not be eligible for benefits under a policy with this definition.

How do insurance companies decide disability insurance premiums?

For an individual disability insurance policy, the cost of premiums varies depending on several factors, such as age, gender, health, smoking status, and occupation. Like most insurance policies, the risk to insurers increases the older a person is, as the possibility of getting a disability is higher and so premiums increase with age. 

Where disability insurance premiums diverge from life insurance is when it comes to gender. While men tend to pay more in life insurance premiums, women can be subject to higher disability insurance premiums, due to a higher statistical filing rate and more expensive claims. 

According to insurer stats, women are more likely to take time off work due to disability. Health and occupation also factor in: medical history can influence private disability insurance rates as can having a higher risk job. For example, an office worker may have access to lower premiums than someone working with heavy machinery.

Of course, the type of policy also comes into play. Disability insurance policies with lower benefits and shorter coverage periods will have lower premiums than policies with higher benefits and longer coverage periods. 

The nature of the coverage is also important. For example, disability insurance coverage has three definitions of disability: “any occupation,” “regular occupation,” and “own occupation”. Any occupation coverage—the cheaper option—only pays out if the policyholder is unable to work at any job.  A policy with a “regular occupation” definition also protects your ability to work in your pre-injury occupation or one fitting your experience and level of education. Own occupation, by contrast, provides coverage if the policyholder is unable to work the job they have. This type of coverage, which pays out more frequently, is thus more expensive.

The last important cost influencer for long-term disability insurance premiums is the waiting period. Also known as the elimination period, the waiting period is the time between when you stop working and when the disability benefits kick in. During this period, you will either be covered by short-term disability insurance (which has short wait periods) or you will pay out of pocket. For an LTD policy, the length of a waiting period has an impact on the premiums you pay: a short waiting period (30-60 days) will have much costlier premiums than a longer waiting period (120-365 days).

Is a disability insurance benefit paid monthly?

Yes, unlike critical illness insurance which pays out a one-time lump sum, disability insurance issues monthly or bi-weekly payments. The reasoning is that the benefit payments mimic regular income earnings even if you are not able to work. The idea is that monthly disability payments will ensure stability and enable you and your family to maintain your cost of living prior to losing the ability to work. 

Depending on where your disability benefits are coming from (either individual or employer), they may or may not be considered taxable income. If you are receiving benefits through an employer who pays the policy premiums, your monthly disability benefit income will likely be taxable.

With an individual disability insurance policy—which are becoming more popular as employers cut back on benefits and people are increasingly self-employed—you are responsible for paying premiums to keep the policy active. One of the greatest advantages of individually-owned coverage is that the monthly benefits you receive are tax-free.

How much do you get paid out for disability insurance in Canada?

With short and long-term disability insurance, it is common to get paid out 50-100% of your income each month, depending on the type policy. 

In Canada, it is possible you will receive some income replacement if you become unable to work even without employer benefits or an individual disability insurance policy. For example, if you are eligible for employment insurance (EI), you may receive sickness benefits. These provide up to 15 weeks of coverage if you become unable to work for medical reasons. With EI sickness benefits the coverage is limited: it pays out up to 55% of your monthly income up to a maximum of $595/week or $2,380/month. For people making less than $30,000/year, this could be suitable for short-term disability coverage. Anything more, however, and it is probably a good idea to buy supplemental disability insurance. 

While EI sickness benefits are intended for short-term financial support, the Canadian government also offers a safety net for long-term disability through the Canadian Pension Plan (CPP) disability benefit. People with a long-term disability who are under the age of 65 and who have contributed enough to the CPP qualify for this benefit. However, this coverage is even more limited than EI with an average monthly amount of $1,031 up to a maximum of $1,413/month. If you qualify for this benefit and have private disability insurance, your private benefit will be adjusted to account for the CPP payment. 

Ultimately, it is a good idea to look into protecting yourself and your family financially should you lose the ability to earn an income. While it is unfortunate to think about, an accident or sudden diagnosis can upturn your life, not only affecting your health but also your ability to work and earn a living. Disability insurance provides a safety net in these cases, ensuring that you can focus on yourself and your loved ones during this time, rather than worry about how to make ends meet. In some cases, government benefits or employer benefits will be enough, but if you don’t qualify for these or have additional coverage needs, it is worthwhile to think about a private disability policy.

Who sells disability insurance?

Many insurance companies also sell disability insurance products, and there’s one quick, simple marketplace that lets you compare them all.

Disability insurance – it’s not the first thing anyone wants to talk about. While most Canadians are a teensy bit more comfortable talking about death or major illnesses which accompany ageing, we like to pretend we’re invincible in our prime earning years.

Unfortunately, that’s just not true. 1 in 7 Canadians identifies as having a disability and 33 percent of workers between ages 30-64 will experience a disability greater than 90 days. What’s more, less than 10 percent of disability claims are due to accidents; most are due to illnesses.

Now that we’ve burst the invincibility bubble, it’s time to matter-of-factly dispel some other myths around disability insurance. We take our ability to earn an income for granted. If you get insurance for other assets in your life, why wouldn’t you wish to protect the most valuable asset of your life?

The quality of life you’ve built for yourself and your loved ones may be hard to maintain if you find yourself without your regular paycheque. Don’t bury your head in the sand on this one. Read this guide for straight answers around a difficult subject.

What is disability insurance?

Disability insurance, sometimes also referred to as income protection insurance, is an insurance product which offers you protection against loss of income by replacing a substantial portion of your paycheque if you become disabled. The insurance company that offers you the coverage typically agrees to replace 60 to 85 percent of your regular income, regardless of whether the loss of your earning ability was due to a sudden accident or a degenerative illness. This ‘benefit’ payment is made to you until you return to good health (i.e. resume working) or until the end of your disability coverage period – whichever comes earlier of course! The monthly or weekly benefit payment is potentially tax-free, but more on that later.

Do I need disability insurance?

TBH that’s a personal question only you can answer.

But!… As your honest advisor, let’s help you think this through. No crazy math calculations are needed for this one. Disability insurance is a must-have for anyone depending on their regular income to pay for rent or mortgage costs, those who need a paycheque to support their family or provide for other daily living expenses, those who have limited access to savings or investments to maintain their current lifestyle for an extended period of time, or any other financial obligations. If you’re one of the rare people who could live the rest of your life in comfort off of your current savings, then maybe this product isn’t for you.

What conditions qualify for disability insurance?

Canadians are susceptible to injuries and conditions that prevent them from working. No wonder 12 million Canadians have disability insurance coverage (CLHIA, 2016, PDF). Though, this doesn’t mean they fully understand the main causes for disability claims. While – as we said – the first thing many people think of when they hear disability insurance is physical ailments and accidents that may bar them from working, the top 4 reasons for disability claims in Canada are mental illness, musculoskeletal issues, and injury or poisoning.

What are the different types of disability insurance?

Broadly speaking, there are two types of disability insurance. The categories work exactly as their names claim to — no complex mnemonic needed.

Short-term disability insurance is usually offered to cover the loss of income from short-term or temporary health issues arising from a less-serious illness or accident. The benefit payments can begin as soon as you use up your sick leave, sometimes as early as 1-14 days after a claim is submitted, with coverage lasting typically between 6-26 weeks – although coverage can also go as long as 52 weeks. It’s commonly used for temporary health issues, like minor accidents, sports injuries and back problems that may prevent you from working for a few weeks or months. Short-term disability insurance also takes precedence. It is frequently applied to cover some or all of the period prior to the start of payments under a long-term disability coverage (See elimination period below).

Short-term plans are generally offered by your employer as they seek to attract and retain talent and typically cover 50 to 70 percent of your income. Some employers may not offer short-term coverage in which case employees that are eligible rely on federal Employment Insurance (EI) disability benefits.

Long-term disability insurance is used to protect against loss of income from more persistent, ongoing health issues. Its coverage usually begins right after the short-term disability period is over and the coverage time can be for 2 or 5 years, although most coverages last until the age of 65 (standard retirement age). It’s usually purchased by individuals to supplement their employer-provided disability insurance. It’s commonly used for mental health problems, musculoskeletal problems, accidents, and more.

How do I buy disability insurance?

You can potentially buy disability insurance through your employer, through a professional association or groups of which you are a member, or individually. Generally speaking, most disability products arranged through groups – be it your employer or an association – are cheaper and are guaranteed at issue; you could elect to get coverage just by becoming an employee or a member of the group. No individual underwriting needed. Some employers even pay a share of up to 100 percent of the disability premiums. Count yourself fortunate if you find yourself in that situation, as employer-provided disability coverages continue to shrink. Lastly, if your employer or association pays for any or all of your premiums, the disability benefits that you may receive are taxable.

I have employer-provided disability coverage, why do I need individual disability insurance?

Well as they say, if the deal sounds too good to be true, then it usually is. Employer disability or for that matter most group-arranged disability policies have limitations, such as a limited coverage amount that is likely inadequate to cover your income replacement needs, nor do they have any flexibility to customize coverage. By definition, when it rains it pours – your enrolment in the group plan is also predicated on your continued employment or continued participation in the group or your plan sponsor’s continuation in their program. Should you change employers or leave the group, you risk losing the coverage and most certainly the temporary benefit of lower pricing. Individual disability insurance plans, that you apply for directly, are something you can truly call your own. Ask the 1 million Canadians that have chosen to buy their own disability policies.

What are the benefits of an individual disability insurance policy?

With an individual disability insurance policy, you own your coverage. You can seek the maximum coverage amount your individual circumstances allow and add additional top-ups to make it perfectly sized for you. The coverage is portable: it goes wherever you go, regardless of whether you change employers or make new friends with new group memberships. Your cost of insurance will not change unless you increase the coverage amount. And if you pay your own premiums using after-tax income, you will receive the benefits tax-free.

What can disability insurance payments be used for?

Whatever you choose! The monthly benefit you receive from an individual disability insurance policy can cover your everyday expenses as well help you pay any long-term debt repayments and medical bills. Additionally, many policies also provide non-monetary benefits such as rehabilitation, financial planning, job training, and more to help you regain your physical, emotional, and financial well-being.

When should I buy disability insurance?

If you need disability insurance, then purchase it right now! The cost of disability insurance will never be lower for you than it is currently; the costs only increase with age. If you’re in relatively good health, you should easily qualify for a disability policy – and can lock in lower rates at this age. Alternatively, if your health declines or occupation changes, you may no longer be insurable at an affordable premium in the future that you could easily obtain today.

How much does disability insurance cost?

As a rule of thumb, disability insurance can cost between 1 – 3% of your annual income. The payments (aka premiums) can be made monthly, quarterly or annually.

What factors affect the cost of disability insurance?

The actual cost of disability insurance depends on a few factors:

Age. Like most other life and illness insurance products, age matters. The younger you are, the lower the risk of experiencing a disability and therefore the lower the cost of protecting you against it.

Gender. Actuaries have determined women file more disability claims and are likely to have more expensive claims (from an insurer’s point of view) as they may be out of employment for longer periods of time. As per Stats Canada, 15% of women – compared to 12% of men – aged 15 or older reported having one or more disabilities that limited them in their daily activities in 2012. For the same age, 61% of women with disabilities participated in the labour force while 63% of men with disabilities were working. All other factors being equal, women may pay almost 40% higher disability insurance rates than men. This is quite a contrast to life or auto insurance rates, where the pricing advantage is firmly with women.

Smoking Status. Smoking (or tobacco use) is the leading risk for disability and premature death in Canada, causing 45,000 deaths annually. A tobacco-free lifestyle has huge health benefits and even bigger insurance premium benefits. If you are willing to butt out, you may save yourself from some premium-sized holes in your pocket.

Health.  Similar to other life and illness insurance policies, insurance companies look at your recent and past health history to establish whether they can offer disability insurance and the price at which they should offer. Therefore you should apply for disability insurance when you are in good health and free of any disabilities.

Occupation. Premiums are usually based on the type of occupation a person has and the perceived level of risk. A high-income earning professional doing the majority of their work inside an office has a lower premium compared to a manual labourer or skilled tradesman.

Can the type of insurance policy affect my premium rates?

Of course! The cost of disability insurance also depends on certain variable factors you choose when you start the policy: the benefit amount, the waiting period, the benefit period, and the classes of disability we mention later in this guide (own, regular, and any).

Benefit Amount. The amount of cash you receive as your monthly benefit. It depends on your current income and occupation class but is generally offered between 60-80 percent of your monthly take-home pay, up to a pre-defined maximum. If you buy your own policy and pay for premiums with your after-tax dollars, your benefits will not be taxed, so a 60-80 percent coverage benefit could help replace most of your current monthly take-home pay. The higher your benefit amount selection, the higher the premiums.

Waiting Period (aka Elimination Period). This is the period of time between the start of your disability and the start of the benefit payment period. During the waiting period, you are paying for your needs out-of-pocket. Most long-term disability policies will allow waiting periods of 30, 60, 90, 120, 180 and 365 days, although 120 days is the most commonly selected period. The longer your waiting period the lower you will pay in premium. Why? Most disabilities are resolved within the first few months ( such as broken bones, back issues, short term illnesses); the longer the waiting period, the less likely an insurer will have to start paying out on a claim.

Benefit Period. This is the length of term of your benefit, or how long you will receive the benefit payment. Common term lengths are 2 years, 5 years, or until age 65. The longer your chosen benefit period, the higher your premium.

Disability Definition. This is the most important criteria for defining the cost of your disability insurance and can even determine whether or not you will be considered eligible to receive benefits.

To get an idea of how these factors influence the price of a policy, play around with the sliders on our disability insurance calculator.

Different definitions? What are the different disability definitions?

There are three different kinds of disability insurance you can purchase. Own, Regular, and Any. Despite their sounding like different kinds of petrol, choosing disability insurance is not like going to the gas station.

Own-Occupation. A policy with an own-occupation definition protects your ability to work in your specific profession. You will be eligible for benefits if a disability prevents or limits you from performing the duties of your pre-injury occupation. There are no restrictions: for instance, you can continue to receive benefit payments even if you’re able to work in another occupation or in any other capacity. This definition is usually offered to professionals that have made a significant investment in their occupation, including years of training and acquired experience e.g. surgeons, lawyers, accountants, senior corporate professionals, etc. Given the generous occupation definition, this type of policy is associated with the highest premiums and typically only available for specialized professions.

Regular-Occupation.  A policy with a “Regular Occupation” definition also protects your ability to work in your pre-injury occupation or one fitting your experience and level of education. Though it sounds similar to own-occupation there is one critical caveat. If you choose to work in a different occupation, your benefits will be reduced, or fully withdrawn. To put it differently, to claim under this policy, you can collect full benefits for as long as you are disabled and unable to perform essential duties of your pre-injury occupation, but you can’t choose to take up any other comparable job.

Any-Occupation. This is the most stringent definition of disability that can be covered in a disability insurance policy. Under this type of policy, you may be ineligible to receive benefits if you can work in any other job. You may not even be working, but if you are deemed to be able to work, you will not be eligible for benefits under a policy with this definition. Therefore, any-occupation policies typically have the lowest premiums.

This can get a little confusing so let’s use an example. Let’s say you’re a surgeon and have gone through the years of education and training required. Through some unfortunate turn of events, you lose your pinky finger after a random shark attack. Bad luck; we know.

If you have own-occupation disability insurance, you are now entitled to your full benefit. Though you can still perform many other duties in the medical field, a surgeon needs their pinky for those tricky sutures and scalpel work.

If you have regular-occupation disability insurance you do not receive your full benefit or in most cases any at all. You can still perform many roles in the medical field, change your specialty, or teach without the full use of your hand.

If you had any-occupation disability insurance, a shark could have chomped off your whole arm or any other number of appendages. But, if you are still able to perform the duties of any occupation, you are not entitled to your benefit. It only pays out for a completely debilitating condition.

How much disability insurance coverage can I get?

For most Canadians, the maximum coverage amount for disability insurance is based on your age, occupation class, income and any limitations of the underlying product. But, specialized pricing and policies are available for the ballers out there…

Disability policies from employers, groups, or even one you purchase personally all coordinate – unlike other insurances – so buying more will not get you more coverage than you are eligible for overall. Insurance companies coordinate benefits with each other to make sure you are only paid out your maximum eligibility, so if you buy more than your income can justify you may be overpaying.

For qualified professionals seeking coverage, the monthly benefit can range from $500 to as high as $25,000 a month depending on your specific occupation and current income levels, or even more for highly specialized cases.

How do I apply for individual disability insurance?

The application process for individual disability insurance is very similar to applying for life insurance. The underwriting process, similar to when you apply for the best life insurance, evaluates whether you are insurable. Insurance companies will pay particular attention to whether you have any preexisting conditions that could later prevent you from working. There is also an extra step to verify your income level and work credentials since your coverage amount is generally established based on your current income. In some cases, companies may also benchmark coverage off the average income levels from previous years. PolicyAdvisor’s disability insurance tool lets you learn about disability insurance, play around with the numbers, and apply online.

What would disqualify me from getting disability insurance?

Because disability income is based on income replacement, you must be working and earning an income to apply for disability insurance.

Will disability insurance cover me if I’m self-employed?

If you are amongst the rising number of entrepreneurial Canadians choosing to be their own boss, you should plan for a safety net for you and your family through disability insurance. Disability insurance plans are designed to cover self-employed individuals’ needs for protecting their income and some can also help cover business expenses. You’ll need to provide proof of income for a substantial period of time and the status may also affect the price of premiums.

Does disability insurance cover pre-existing conditions?

Pre-existing conditions don’t necessarily disqualify you from obtaining disability insurance. Insurance companies will typically carve out an exclusion for certain pre-existing conditions. These exclusions may be permanent, or in some cases may be removed if there is no recurrence or degeneration of the condition within a pre-designated period of time. If you currently deal with a condition or disability but can still perform the duties of your occupation, it’s possible to obtain disability insurance for conditions or illnesses unrelated to your current disability. You can be covered for new, unrelated disabilities, but not further complications from the pre-existing ones you had.

How does pregnancy affect individual disability insurance?

It’s complicated and really depends on your policy. While most policies won’t pay disability benefits for a normal pregnancy or childbirth, some will approve claims for disabilities arising from complications during pregnancy or childbirth. When in doubt, speak to our friendly licensed advisors.

Do I need disability if I have critical illness insurance? What about if I have life insurance?

Life insurance and critical illness insurance are important protection products, however, they serve very different needs. Life insurance covers your death; an insurance company will pay your designated beneficiary a lump-sum tax-free amount when you die. Critical illness insurance covers if you develop a specified illness, have a health event or undergo treatment. You receive a tax-free lump-sum payment once proof of the illness or health incident is established.

Similar to critical illness insurance and unlike life insurance, disability insurance is a living benefit to you. This means you can avail of the benefit while you are alive. However, the disability is specifically designed to replace your ongoing income when you are unable to work due to disabilities that may not qualify as life-threatening and therefore not trigger a payment under critical illness policies.

Is mortgage disability insurance worth getting?

Our view on mortgage disability insurance is very similar to our view on bank-provided mortgage insurance. You are much better served by insurance products that serve you and your financial situation and security; not one that can only be applied to safeguard your lender. So repeat after us: Mortgage disability insurance covers the lender, not you! And individual disability insurance will typically be a better product for protecting you and your family.

Wouldn’t public healthcare or Canada Pension Plan (CPP) would cover me instead?

If you are contributing to Employment Insurance and CPP/QPP, you are indeed eligible for EI Sickness Benefits and CPP Disability Benefits respectively. However, the criteria for offering coverage or disbursing benefits is very stringent, and payout through these programs may be much lower than your current monthly wages.

EI Sickness Benefits provide for Canadians unable to work because of sickness, injury, or other issues. The benefits, subject to eligibility conditions of work history and EI contributions, are paid out for a maximum of 15 weeks after a 1 week waiting period. You may receive up to 55 percent of your maximum insurable earnings with a maximum benefit amount of $562 per week. You may be able to receive an additional family supplement depending on your net family income, your spousal situation, and whether you have children. The EI sickness benefit amount is however always taxable. So yes – you are potentially covered by this public safety net – but it’s a pretty small net and not considered adequate by a large number of claimants.

CPP Disability Benefits provide for those who have made contributions to CPP and are disabled and cannot work at any job on a regular basis. The disability must be both severe and prolonged. Severe disabilities are those that stop you from doing any type of substantial, gainful work at all. Prolonged disabilities are long-term where the duration is either unknown or likely to result in death. The average payout for CPP Disability benefits in Canada is just under $1,000 per month; the maximum monthly payment as of 2019 is just over $1,300. CPP benefits are also taxed, just like income. Most individuals would find the $16,000 in pre-tax benefits less than adequate to pay their bills and maintain their lifestyles. And remember, CPP benefits only pay out if you are completely unable to obtain gainful employment whatsoever.

Private disability insurance plans exist to cover the gap for those who need protection beyond the critical but small social safety net that covers the basic needs of Canadians.

I have insurance through WSIB, why would I need private disability insurance?

The Workplace Safety and Insurance Board (WSIB) is an Ontario-specific workers’ compensation board. Each province, territory, and Canada itself (for Federal employees) has its own. These boards exist to protect employees from the financial hardships associated with work-related permanent injuries and conditions and are solely funded through employer premiums. They operate at arm’s length to make sure employee claims for workplace accidents are administered correctly. WSIB and similar coverages are mandatory for certain categories of employers such as those operating in the construction industry but are purely optional for many other categories of employers.

In cases where you have WSIB coverage through your employer, remember it may not be what you think it is. Disability insurance offered through WSIB is generally tailored specifically around covering accidents that happen on the job. If you are injured outside of the workplace, this insurance won’t cover you, and mostly involves lump sum tax-free payments for loss of appendages or senses like sight and hearing due to a workplace accident.

Are disability insurance payments taxable?

There’s some debate on who said it, but the quote still rings true: Nothing is certain except for death and taxes. The government will get its share of your earnings one way or another. Depending on the disability insurance policy you paid into in the first place, your benefit will be taxable.

Disability income may or may not be subject to income tax, depending on whether the policy premium was funded with pre-tax or after-tax dollars, among other considerations. If you are paid out by a policy that was fully or partly paid by your employer or another association or entity, generally using pre-tax premium dollars, you will be taxed when you receive the payment.

However, for a policy you pay entirely, the story will be different. If you are paying the full price for premiums throughout your coverage period, and do not claim them as tax-deductible business expenses, you will not be taxed on the benefit you may one day receive. Why? Because the money you are using to pay those premiums has already been taxed. There’s no double jeopardy in taxes.

Can I get my premiums back if I don’t make a claim during the coverage period?

It’s possible. Some disability insurance policies offer a Return of Premium (ROP) rider. What this means is that after a set time period where you make zero claims, you are entitled to receive a percentage back of the premiums you paid. The catch? Your premiums will be more expensive.

What happens at the end of the coverage period?

Some disability insurance policies have options to convert them to long-term care coverage at the end of the coverage period. You would typically need to be between the ages of 55-65 when your coverage period ends to take advantage of this option. It activates in your twilight years if you need assisted-living options, whether in your own home or in a group setting.

What happens to my disability insurance payout if I die?

In most cases, your benefit ends with your death, the same as your wages would with a job. However many disability policies will also include a survivor benefit whereby your family or any designated beneficiary may receive a lump sum payment of up to 3 times the maximum monthly benefit, should you pass away while receiving disability benefits.

Do I pay more if I purchase a disability policy through a broker?

Of course not! On the flip side, you may be able to save money on a disability policy if you use an independent broker. At PolicyAdvisor, we compare a broad selection of policies from the market, evaluate them across features and prices and recommend to you the best disability coverage at the lowest price possible. Given our extensive relationships, we also know how to advocate for you with our partners. When you are ready, give the tool a spin!

Who sells disability insurance?

Many insurance companies also sell disability insurance products, and there’s one quick, simple marketplace that lets you compare them all.

Disability insurance can protect you and your family from major loss of income if you’re injured or become ill and can no longer work. This insurance provides a monthly payout upon becoming disabled to replace some of the income you lose when you can’t work due to an illness or disability.

Coverage is categorized based on the length of the benefit period, called short-term disability insurance (STD) and long-term disability insurance (LTD). 

In this article, we focus just on short-term disability insurance. We explain what it is, how it works, and what it covers. We further detail how it may differ from critical illness insurance and the differences between employer disability insurance and individual disability insurance.

What is short-term disability insurance?

Short-term disability insurance provides income replacement if you’re unable to work for a short period of time. The benefit payments can begin as soon as you use up your sick leave, sometimes as early as 1-14 days after a claim is submitted, with coverage lasting typically between 6-26 weeks – although coverage can also go as long as 52 weeks. It’s commonly used for temporary health issues, like minor accidents, sports injuries and back problems that may prevent you from working for a few weeks or months. The benefit payments from STD insurance can cover most of your lost income, so while you recover you don’t have to worry about meeting your basic financial needs. 

You can get short-term disability insurance from three places: 

• Federal programs: Employment Insurance (EI) usually accommodate Canadians who can’t earn an income due to a lay-off or shortage of work. However, EI also has specific qualifications in order to receive benefit payments. EI Sickness Benefits are also available for those who are injured or ill. This is paid out for a maximum of 15 weeks for 55% of your earnings with a max of $595 per week. For Canadians who cannot work on a regular basis due to disability, CPP Disability Benefits can help. This coverage pays out just over $1,413 a month max but is only available if the individual is completely unable to obtain gainful employment and has made adequate contributions to the CPP.
• Your employer: You may be eligible for short-term disability insurance through your work’s group insurance plan. This plan usually covers 50-100%% of your income and costs only a few dollars off your paycheck, although sometimes your employer may pay for the cost entirely. 
• Individual plans: These are purchased on your own from a private insurance company, such as the ones we work with at PolicyAdvisor. Coverage goes with you anywhere and you decide how much you’re covered for, for how long, and how much you pay in premiums. 

At PolicyAdvisor, we are happy to assist anyone looking to set up individual plans who do not qualify for an employer or federal short-term disability insurance. However, if you are eligible for employer benefits, they are usually the most cost-effective option for short-term disability—for long-term disability, it’s another story.

How does short-term disability insurance work?

Short-term disability insurance acts as income replacement for the time after you use your sick days and before any long-term disability insurance kicks in (if you have that in place). If you find that you are unable to work due to a disability, you may be able to take sick/leave days. When those sick/leave days are up or if you don’t have these types of days allotted to you through your work, you can file a claim through your short-term disability plan to make up for some of your lost income. In the claims process, the insurance company will usually require medical records and reports detailing your condition and disabilities due to the accident or illness. After you file a claim, benefit payments can begin almost immediately. The waiting period for benefit payments can sometimes be 1-14 days after filing in some cases. It’s important to note that the payment periods for an STD policy’s benefits may differ from your usual job payment schedule—benefit payments are usually monthly, not bi-weekly. 

Coverage periods usually range from 6-26 weeks, although some policies allow for benefit periods of up to 52 weeks. Again, coverage varies between plans. If you can’t return to work after this period, you might need to transition to long-term disability benefits. The significant distinction between short- and long-term disability insurance is that a short-term policy usually considers a benefit period in weeks while a long-term disability policy counts a benefit period in years. 

Regardless of whether it’s an individual or company policy, knowing what accidents, illnesses, and injuries your plan covers is essential. Every plan and insurer has different scopes. For example, disabilities resulting from mental health issues or pregnancy might not qualify for every insurance plan.

How is an individual policy different from a work short-term disability plan?

The most obvious difference between an individual and an employer’s short-term disability plan is who pays. If you purchase an individual plan from an insurer, you pay for it out of pocket. If you have a work plan, it may be your employer paying for it as part of your benefits package. Or, your work coverage might be a pooled effort between employees and taken off of your regular paycheck. Pooled plans may be offered by your union or through other agreements. Sometimes, you may have the option to upgrade your coverage in exchange for an additional deduction from your paycheque. 

That being said, employer plans are cheap! Many short-term disability policies are offered through discounted group benefit plans, meaning that employees pay little to nothing in premiums—the premiums are usually deducted right off their paycheck. In general, however, the cost of an STD insurance policy is highly dependent on your salary. Because disability insurance pays out a portion (between 50% and 100%) of your income, premiums costs vary significantly.

If you are self-employed and don’t qualify for group or work short-term disability, then an individual plan is your best bet. While individual plans can be pricier compared to their group counterparts, you can customize your individual plan with one of the carriers we work with at PolicyAdvisor to fit your budget. For example, if you set your waiting period to 90-120 days, your premiums will be cheaper— but you will be responsible for replacing your income in that time before coverage kicks in.

Is critical illness insurance the same as short-term disability insurance?

Critical illness insurance is an agreement with a life insurance company where they pay you a tax-free lump sum in the event you contract a life-threatening condition or illness. Critical illness insurance and short-term disability insurance cover many of the same situations. For example, if a stroke hospitalizes you and prevents you from working, both benefits might kick in. However, a disability benefit is a monthly or biweekly payment to compensate for the loss of income, and critical illness insurance is a one-time lump sum payment.

Overall, disability insurance is meant to cover daily expenses and bills when you can’t work. Critical illness benefits fulfill the same need, but recipients also use the money to pay for costs such as private hospital rooms, medical expenses, and other recovery needs.

What does short-term disability usually cover?

Short-term disability insurance covers incidents when you can’t work due to injury, accident, or hospitalization. It doesn’t cover work-related or on-the-job injuries, as workers’ compensation usually handles this. The most common claims are for mental illness, musculoskeletal issues, injury, or poisoning

Examples of short-term disabilities that qualify for coverage

Suppose you get into a car accident while on a weekend getaway. You might end up in the hospital and require time off from your job as a construction worker. You might further need four months of at-home recovery to feel well enough to be back moving heavy materials on-site. During this time off, you won’t be able to receive your usual salary because you aren’t fit to work. Short-term disability insurance would instead step in to provide enough income to support your day-to-day needs. 

Another example is if you faced a heart attack or stroke. Such an incident could trigger your short-term disability insurance and critical illness benefits. Again, your short-term disability plan could provide some or most of the pay you’re missing out on by not being able to work. If your recovery takes longer than your short-term benefit period, your long-term disability insurance may provide further coverage. 

Does anxiety or mental health issues qualify for short-term disability?

While disabilities caused by mental health disorders are one of the top reasons for a disability claim, qualifications for anxiety or mental health issues depend on the insurer and the plan. With mental health issues becoming more diagnosed and recognized on the same level as a physical illness or injury, more insurers are including it in their short-term disability plans. However, not every policy guarantees mental health coverage — some might only cover physical injuries or require additional premiums to be included in the scope for mental health coverage or may exclude specific mental illnesses depending on the individual’s mental health history. 

Whether mental health issues qualify may also depend on the severity. For example, if a panic attack hospitalizes you and you’re unable to work, it may better justify a short-term policy’s payout. In contrast, a stress leave may create a grey area to qualify for short-term disability insurers.

Is it worth getting short-term disability insurance?

Whether you should purchase short-term disability insurance depends on you and your family’s needs. First, figure out how much income you’ll need to replace if you face an unfortunate circumstance that leaves you unable to work. Could employment insurance payouts cover this amount? Or do you need additional coverage?

Further, your employer may sponsor short-term disability coverage. This might be a cheap option for you to cover some of your income, but it might not provide enough to fit your family’s needs. This might mean purchasing additional policies or upgrading your work plan. 

It’s beneficial to work with an insurance advisor to determine what your short-term disability needs are and how much a short term disablity insurance policy costs. A member of the PolicyAdvisor can review your employer-provided plan and make sure you have a short-term disability policy that matches your needs. Schedule a call with one of our experts today and ensure your family is protected if you ever face an illness, accident, or injury. 

Who sells disability insurance?

Many insurance companies also sell disability insurance products, and there’s one quick, simple marketplace that lets you compare them all.