Disability insurance can protect you and your family from major loss of income if you are injured or become ill and can no longer work. Coverage is categorized based on the length of the benefit period, called short-term disability insurance (STD) and long-term disability insurance (LTD). STD provides temporary income replacement while you recover, while LTD typically takes over when your STD benefits or elimination period ends, providing income support for a longer-term disability.

What is short-term disability insurance?

Short-term disability insurance provides income replacement if you are unable to work for a short period of time. The benefit payments can begin as soon as the waiting period is over (0-14 days), with coverage lasting typically between 6-26 weeks, although coverage can also go as long as 52 weeks. 

It is 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.

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). 

• Apply for STD insurance benefits: Once your sick days are exhausted or if you do not have paid sick leave, you can file a claim under your short-term disability plan to replace part of your lost income
• Provide medical documentation: The insurer will require medical records, reports, or other information from your healthcare provider to confirm your condition and inability to work
• Complete the waiting period: Your policy may have a waiting or elimination period before benefits begin. Depending on the plan, this can vary from a few days to several weeks.
• Receive income replacement: Once your claim is approved and the applicable waiting period of 0-14 days has been met, you can receive a portion of your regular income. Short term disability coverage lasts 6 to 26 weeks, although some plans may provide benefits for up to 52 weeks

If you remain unable to work after your short-term disability benefits end, you may transition to long-term disability insurance benefits, provided you meet its eligibility requirements.

What does short-term disability usually cover?

Short term disability insurance can cover a range of illnesses, injuries, and medical conditions that temporarily prevent you from working. Common conditions that may be covered under short-term disability benefits include:

• Cognitive issues: Conditions that affect brain function, such as memory problems, difficulty concentrating, impaired decision-making, confusion, or delirium, may make it difficult to perform regular work activities
• Breathing difficulties: Respiratory conditions such as asthma, pneumonia, influenza, tuberculosis, or other lung diseases can make it difficult to work, particularly when symptoms significantly affect breathing or physical activity
• Chronic pain: Persistent pain caused by conditions such as back problems, arthritis, or cancer may qualify when the symptoms are severe enough to prevent an employee from performing their regular duties or daily activities
• Hearing issues: Hearing impairment caused by factors such as illness, injury, prolonged exposure to loud noise, or other medical conditions may affect a person’s ability to perform their job, particularly in workplaces where communication or hearing is essential
• Digestive issues: Conditions affecting the digestive system, such as irritable bowel syndrome (IBS), gastroesophageal reflux disease (GERD), or certain cancers, may qualify when symptoms prevent an employee from working
• Restricted mobility: Conditions that limit movement or the use of the upper or lower body may qualify for STD insurance benefits. For example, an injury or illness that requires the use of a wheelchair, cane, or walker may temporarily prevent someone from performing their regular job duties

What does short-disability insurance not cover?

Short-term disability insurance doesn’t cover work-related or on-the-job injuries. There are a few other exclusions as well, such as:

• Pre-existing conditions
• Self-inflicted injuries
• Work-related injuries
• Elective or cosmetic procedures
• Cosmetic procedures
• Disabilities outside the policy definition

How can short-term disability insurance help in real-life situations?

One of our advisors recently helped a client who worked as a construction worker. After reviewing his income, occupation, and existing workplace benefits, the advisor helped him choose short-term disability coverage to protect his earnings if an injury temporarily prevented him from working.

Later, the client was injured in a car accident and required hospitalization followed by several months of recovery at home. Because he was unable to perform physically demanding duties or return to the construction site, he could not earn his usual income. After satisfying the policy’s waiting period (0-30 days), his short-term disability benefits provided a portion of his lost income, helping him cover everyday expenses while he recovered and prepared to return to work.

Types of short-term disability insurance

Short-term disability benefits in Canada can come from government programs, an employer-sponsored group plan, or an individual policy purchased from a private insurer. Each option works differently and offers different levels of income protection.

• Government programs: The federal government offers disability-related income support through programs such as Employment Insurance (EI) Sickness Benefits and Canada Pension Plan (CPP) Disability Benefits. EI Sickness Benefits provide short-term income support, up to a maximum of $729 per week for up to 26 weeks. CPP Disability Benefits are available to eligible CPP contributors aged 18 to 65 with a severe and prolonged disability that regularly prevents them from working, offering a maximum monthly benefit of $1,741.20
• Employer-sponsored plans: Many employers offer short-term disability coverage as part of a group benefits plan. Depending on the plan, benefits may replace 50%-100% of your regular income while you are unable to work. Your employer may pay all or part of the premium, making this coverage relatively affordable for employees. However, the amount and duration of coverage depend on your employer’s plan
• Individual short-term disability insurance: You can also purchase disability coverage directly from a private insurer. An individual policy can provide coverage that is separate from your employer, giving you greater control over the amount of income you want to protect, the waiting period, and the benefit period. Because the policy is owned by you, coverage generally remains in place even if you change jobs, as long as you continue paying the premiums

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

The main difference between an individual short-term disability (STD) policy and an employer-sponsored plan is who owns and pays for the coverage. Here’s how they compare:

• Who pays the premiums: With an individual policy, you purchase coverage directly from a private insurer and pay the premiums yourself. With an employer-sponsored plan, your employer may pay all or part of the premium, or the cost may be shared among employees through payroll deductions. Some workplace or union plans may also allow you to pay an additional premium to upgrade your coverage
• Cost: Employer-sponsored STD coverage is often less expensive for employees because the premiums may be subsidized by the employer or negotiated as part of a group benefits plan. Individual coverage is generally more expensive because you are responsible for the full premium
• Coverage and flexibility: An employer’s short-term disability plan generally has predetermined benefit amounts, waiting periods, and coverage terms that apply to eligible employees. An individual policy, on the other hand, gives you greater flexibility to choose the amount of income you want to protect and adjust features such as the waiting period, definition of disability, and benefit period to suit your needs
• Portability: Individual short-term disability coverage is generally portable, meaning it stays with you if you change jobs, become self-employed, or leave the workforce, as long as you continue paying your premiums. Employer-sponsored coverage is tied to your employment and may end when you leave the company

Benefits of short-term disability insurance

Listed below are some of the reasons why STD Insurance is important:

• Replaces a portion of lost income: Short term disability benefits can replace 50-100% of your regular income when an illness or injury prevents you from working. Having income protection can reduce the financial stress associated with an unexpected illness and allow you to focus on recovering rather than returning to work too soon
• Bridges the gap before LTD coverage: STD insurance coverage can provide income support during the initial weeks or months of a disability before long-term disability (LTD) benefits become available, if LTD coverage is included in the plan
• Supports employee retention: For employers, offering short term disability coverage can make a benefits package more competitive and help attract and retain employees. Employees often place greater value on workplaces that protect against unexpected financial hardship
• Encourages employees to take necessary time off: Income protection can give employees greater flexibility to take time away from work when they are genuinely ill or injured, rather than feeling pressured to work through a health issue
• Flexible spending: Payouts go directly to you with no restrictions, meaning you can use the funds for rent, groceries, utilities, or medical bills

How long do short-term disability benefits last?

Short-term disability benefits most commonly last 6 to 26 weeks, although the exact duration varies by plan. Benefits may be approved in shorter increments and require updated medical documentation to continue. If you remain unable to work after STD benefits end, you may transition to LTD benefits if you have eligible coverage. 

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

Yes, anxiety and mental health issues usually qualify for short-term disability. This applies when a medical practitioner confirms that your symptoms prevent you from performing your usual job duties. For example, if a panic attack hospitalizes you and you are unable to work, it may better justify a short-term policy’s payout. As mental health issues become more widely diagnosed and recognized at the same level as physical illness or injury, more insurers are including them 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. Also, whether mental health issues qualify may depend on the severity. For example, a stress leave may create a grey area to qualify for short-term disability insurance.

Are short-term disability benefits taxable in Canada?

Short-term disability benefits may be taxable depending on who pays the premiums. If your employer pays all or part of the premiums, the benefits are taxable. If you pay 100% of the premiums yourself with after-tax income, the benefits are tax-free. If benefits are taxable, you may have to pay income tax on the amount you receive. The tax treatment thus can vary based on how your plan is structured and who actually pays the premium.

Is short term disability insurance worth it?

Whether you should purchase short-term disability insurance depends on you and your family’s needs. First, figure out how much income you will 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 an affordable 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 is beneficial to work with an insurance advisor to determine what your short-term disability needs are and how much a short term disability insurance policy costs. One of our advisors at 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.

Long-term disability (LTD) insurance provides income protection if an illness or injury prevents you from working for an extended period. This coverage can be important for Canadians because nearly 8 million people aged 15 and older, 27% of the population, were living with a disability, according to the latest comprehensive Statistics Canada data. Long-term disability benefits typically replace part of your income after an elimination period and can continue for several years or until age 65.

What is long-term disability insurance?

Long-term disability insurance provides income protection if you become unable to work due to a serious illness or injury. It typically replaces 50% to 70% (sometimes up to 85%) of your income and kicks in after short-term disability benefits end. 

Coverage can last 2, 5, or 10 years, or even until age 65, depending on the policy. Common conditions that qualify for benefits include cancer, mental health disorders, and musculoskeletal injuries, helping individuals manage financial needs while recovering.

While employer-provided disability plans and government programs like EI, CPP, and WSIB offer some coverage, they often have limitations on benefit amounts, eligibility, and coverage duration.  An individual policy can help fill gaps in employer-sponsored coverage. Private long-term disability insurance allows you to customize coverage, choosing benefit amounts, coverage length, and waiting periods. However, the benefits are often coordinated with other income (CPP‑D, WSIB, EI, employer DI), and tax treatment depends on who pays the premium.

What are the types of long-term disability insurance?

There are three types of long-term disability insurance. It is available through workplace plans, government plans, and as individual policies. The main differences are who qualifies, how much control you have, and whether the coverage stays with you if you change jobs.

• Group long-term disability insurance: This coverage is provided through an employer or a professional association. It provides coverage for a portion of your salary if you become disabled. The plan offers pre-set benefits and policy terms, which may include limitations on benefit amounts, waiting periods, and coverage duration. Association plans can be particularly relevant for professionals who do not have employer-sponsored coverage
• Individual long-term disability insurance: Individual or private LTD insurance is purchased privately from an insurer. This provides greater control over the benefit amount, waiting period, benefit period, and definition of disability. It can supplement existing group coverage and help fill gaps in workplace or association plans
• Government disability benefits: Government programs can provide financial support to Canadians who cannot work because of a disability. Depending on the situation, this may include EI sickness benefits, CPP disability benefits, or workers’ compensation benefits such as WSIB

Differences between group and individual long term disability plans

Group and individual long-term disability (LTD) insurance differ in cost, underwriting, taxation, coverage flexibility, control over the policy, and portability. In the table below, we have listed the differences between group and individual long-term disability plans. 

Group vs individual long-term disability plans:

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 circumstances, 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. 

What is partial or residual disability insurance?

Partial or residual disability insurance provides benefits when an illness or injury limits your ability to work or reduces your income, but does not prevent you from working entirely. For example, if you return to work part-time or in a reduced-capacity role and earn less than before your disability, the policy may pay a proportion of your long term disability benefit to help replace the lost income.

How does long term disability insurance work?

To get the benefits of long-term disability insurance, you pay premiums while working, and if you become disabled, you submit a claim and complete the policy’s waiting period before receiving monthly benefits.

Here’s how a long-term disability policy works:

• You pay premiums while you are working: You get long-term coverage in exchange for the premiums you paid while you could work. This usually costs between one and three percent of your annual income. You are no longer required to make premium payments once your benefit period starts
• You become disabled: If an illness or injury prevents you from working and meets the policy’s definition of disability, you can submit a claim to your insurer
• You complete the waiting period: Also called the elimination period, this is the time between the onset of your disability and when benefits become payable. Common waiting periods include 4, 8, 12, 16, 20, or 52 weeks or even 2 years. Generally, a longer waiting period means lower 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.
• You can get short-term disability benefits: During the waiting period before your long-term coverage begins, you may have short-term disability insurance
• You receive long term disability benefits: Once your claim is approved and the waiting period ends, the insurer pays the long term monthly disability benefit outlined in your policy. Your long-term disability benefits may continue for a specified number of years or until a certain age, provided you continue to meet the policy’s definition of disability

Core definitions of disability

Not every illness or injury automatically qualifies for LTD benefits. Your policy will define what constitutes a disability and the conditions you must meet to receive benefits. For example, some policies use an “own occupation” definition, while others may require that you be unable to perform any occupation for which you are reasonably suited by education, training, or experience.

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 are 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 are able to work another reasonably suited job despite your injury. 

An 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 are 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.

What illnesses qualify for long-term disability?

A LTD can be caused by illness, injury, or chronic conditions and must meet the definition of disability in your insurance policy. Some of the most common long-term disabilities include:

• Serious illnesses (e.g., cancer, heart disease)
• Mental health disorders (e.g., severe depression, anxiety)
• Chronic conditions (e.g., multiple sclerosis, arthritis)
• Injuries (e.g., spinal cord damage, paralysis)

Other common illnesses and injuries include: 

• PTSD
• Back injuries
• Factures
• Head or brain injuries (concussions)
• Diabetes
• Nervous system disorders and seizures
• Lupus
• Fibromyalgias and chronic fatigue syndrome
• Gastrointestinal illness (Crohn’s, colitis, irritable bowel syndrome, diverticulitis)

To qualify for benefits, your condition must significantly impact your ability to work and may require medical proof.

How can long-term disability insurance help in real-life situations?

One of our advisors recently helped a client who worked in a physically demanding warehouse job. The advisor reviewed his income, occupation, and financial obligations and helped him choose a long-term disability policy that would provide monthly income if an illness or injury prevented him from working.

Later, the client was diagnosed with multiple sclerosis (MS), which made it difficult for him to continue performing his regular duties. After using his sick days and available short-term disability benefits, he completed the waiting period under his long-term disability policy and began receiving monthly benefits that replaced a portion of his lost income. This helped him continue covering his living expenses while he was unable to work.

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

Yes, anxiety and other mental health conditions can qualify for long-term disability benefits if the condition prevents you from working and meets your policy’s definition of disability. However, some LTD policies place specific limits on mental health claims, such as a maximum benefit period of 24 months. Short-term disability (STD) coverage may also apply first, but it typically provides benefits for a much shorter period, often several weeks or months, before LTD begins.

Your insurer will assess medical evidence and your ability to work when reviewing the claim. For instance, 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.

Benefits of long-term disability insurance in Canada

Disability insurance benefits anyone in their prime working age in the following ways:

• Income protection: Disability insurance ensures a steady income if you are unable to work due to illness or injury. Many people think that they won’t suffer from a disability, but statistics show that disabilities are more common than you might expect
• Peace of mind: Knowing you have financial support in case of disability relieves stress. Some might say they have savings, but savings can deplete quickly without a regular income
• Covers expenses: It helps cover daily living expenses, medical bills, and rehabilitation costs. You might think you can rely on your spouse’s income, but a single income may not be sufficient, especially with additional medical expenses
• Maintains standard of living: Helps you maintain your lifestyle and support your family financially. Your employer may provide workplace benefits, but employer-provided plans may not offer adequate protection or may end with your job
• Customizable coverage: Policies can be tailored to your specific needs, ensuring optimal coverage. Some might find disability insurance expensive, but the cost of not having coverage can be far greater in the long run

How long do most long-term disability benefits last?

The duration of long-term disability benefits can vary based on the kind of disability that you have or the specific plan that you have purchased. Some companies offer disability benefits for a specific period such as 2, 5 or 10 years, whereas other companies can extend their disability benefits until an individual reaches 65 years of age. 

Many individuals choose coverage that lasts until they reach retirement age or can access other financial support, ensuring long-term financial security in case they are unable to return to work.

How much long term disability coverage do you need?

The long-term disability coverage you need depends on the amount of income you would want to replace and how much is actually covered through your employer or government plans. You should choose coverage that can replace 50% to 70% of your income. 

Some of the factors that you should take into consideration to determine the coverage are as follows:

• Calculate your monthly take-home income. This gives you a starting point for the amount you may need to replace
• Review your existing disability benefits. Check your employer’s group plan, CPP/QPP disability benefits, and other sources of income you may qualify for
• Calculate your essential monthly expenses and include housing, food, utilities, debt payments, insurance, and other ongoing financial commitments
• Cover the remaining income gap through an individual long-term disability insurance policy. Subtract the employer benefits from your estimated monthly expenses to check how much individual coverage will be enough

How is long-term disability insurance taxed in Canada?

The tax treatment of long-term disability (LTD) benefits depends primarily on who pays the premiums:

• Employer-paid premiums: If your employer pays all or part of the long-term disability premiums, the benefits you receive are generally taxable as income
• Employee-paid premiums: If you pay the entire premium yourself with after-tax income, your disability benefits are generally tax-free
• Shared premiums: If you and your employer both contribute to the premiums, the tax treatment will be dependent on the benefits received from your employer

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 once 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
• Disability income rider: Provides a monthly income benefit if you become totally and permanently disabled and meet the policy’s eligibility requirements

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 they only pay out a portion of your life insurance benefit and do not provide any ongoing income replacement.

Do I qualify for CPP as well as LTD coverage?

Yes, you can qualify for both Canada Pension Plan Disability (CPP-D) and long-term disability coverage at the same time. The eligibility rules, however, vary for the two plans. To qualify for CPP-D, you must be under 65 years of age, while for other long-term disability plans, the eligibility will depend on the disability plan type you choose. Moreover, your long-term disability insurer will also require you to apply for CPP and may reduce your long-term disability benefit by the amount of CPP you receive. This is known as an offset, so receiving both does not necessarily mean you will receive the full amount of both benefits.

Things to consider when buying long-term disability insurance

When buying long-term disability insurance, a few things you need to consider include the definition of disability, waiting period, monthly benefits, and a few more.

• Definition of disability: Check whether benefits are based on your ability to perform your own occupation or any occupation you are reasonably suited for
• Monthly benefit: Choose an amount that can cover your essential expenses and supplement any existing disability benefits
• Plan type: While individual plans are more customizable, group plans are more affordable. Pick a plan that best suits your needs and budget
• Waiting period: A longer waiting period generally means lower premiums, but you will need enough savings or other coverage to support yourself during that time
• Benefit period: Policies may pay benefits for a set period, such as 2 or 5 years, or until a specified age, such as 65
• Exclusions and limitations: Review conditions or circumstances the policy does not cover before purchasing

Should you get a long-term disability plan?

Yes, long-term disability insurance may be worth considering if losing your income because of an illness or injury would make it difficult to cover your regular expenses. Whether you need additional coverage depends on your income, savings, employer-sponsored benefits, and eligibility for government disability programs.

Before purchasing an LTD plan, consider these questions:

• 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 can sometimes become 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 now to get started!

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 insurance:

• 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.

Mortgage insurance vs term life insurance – which is better?

While mortgage insurance pays off one’s mortgage in the event the borrower dies, other products can do a better job at protecting a mortgage debt.

A term life insurance policy can offer you better mortgage protection in a number of ways:

• The policyholder chooses the beneficiary
• In turn, the beneficiary can choose exactly how the benefit is used
• The benefit can go towards paying off the mortgage and/or other uses, like servicing other debts or handling final expenses

Learn more about mortgage insurance versus 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.

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.

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.

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.

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.