Disability Insurance is pay cheque protection in case you are ever sick or injured and cannot earn your living.
It would be nice if we could save every penny we made, and nothing ever went wrong in life. Managing the financial risk of a short or long-term disability is critical to maintaining your fiscal independence.
Income replacement coverage can be vastly different by carrier.
This is very much a ‘get what you pay for’ type of insurance and saving a few bucks may inadvertently cost you thousands.
It pays to be informed and understand what you are buying.
Getting A Quote
We require more information to quote Disability Insurance this than other types of coverage.
- Age & Smoking Status – the starting point for quoting is your basic information.
- Occupation – The insurance companies classify each job category with a risk rating. Several factors are considered – training, education required, experience and general job description to name a few.
- Employment Status – your relationship to the organization matters for calculating the amount of coverage you can have. Are you an employee or do you have some ownership?
- Income – the amount of coverage you can buy is dependent on your past earnings. The insurance company will not allow you to buy more coverage than you earn. (For medical students, the level of education you have completed can be used instead of income)
- Current Coverage – How much coverage you can buy will also depend on the amount of insurance you already have in place. You cannot insure for more than a certain percentage of your total income. This percentage is variable and generally decreases for higher earners.
Disability Insurance Calculator
Each carrier provides software to help brokers calculate the maximum income replacement benefits available. The information above is used to determine the occupation category and overall maximum that can be purchased.
There are several variables involved with accurate quoting. It’s relatively easy to quote life insurance with an online calculator but much more difficult for income replacement.
- Length of Disability Benefit
- Age of Applicant
- Amount of Coverage – Income Based Eligibility
- Elimination Period
- Riders & Enhancements
- Partial Disability
- Residual Disability or Disability Pension
- Retirement Contributions – Supplement
- Occupation Definitions & Upgrades
- Inflation – Indexing of Coverage Amount
- Inflation – Indexing of Benefit Payments
- Hospital Coverage
This is not a great DIY project (or even a good one). You are well advised to speak with a broker that can gather your information, provide accurate quotes and explain the policy illustrations.
Are disability insurance premiums tax deductible in Canada?
No, and Yes. The answer has more to do with the taxability of benefit payments.
As a rule, if you pay your disability premiums with after tax dollars the benefits will be received tax free in your hands.
This is particularly important when considering your monthly benefit is a reduced percentage of your current income – if your monthly benefit were taxable your ‘take home’ percentage would be further reduced.
Premiums can be deducted in certain situations:
Employer paid premiums for group disability:
- Can be deducted by the employer as a benefits expense
- Are not a taxable benefit to the employee
- Disability benefit payment is taxable to employee
Wage Loss Replacement Plan:
- Premiums Deductible to Business
- Benefits Taxable to Recipient
Business Overhead Disability
- Premiums Deductible to Business
- Benefits Paid & Taxable to Business
Best Disability Insurance
There are a few Canadian carriers with disability on their product shelf. However, the below 3 are the top carriers in Canada for individual long-term disability protection.
The occupational categories, overall limits and pricing are quite similar.
For our purposes, each of these companies has similar riders and coverage options. We’ll simply focus only on each carriers’ unique enhancements.
RBC Disability Insurance
Family Compassionate Care Rider – provides a monthly benefit to insureds whose spouses or children are diagnosed with a terminal illness or terminal injury.
The benefit matches the basic indemnity on the disability policy of the insured.
The benefit payment is payable to the earlier of 12 months or the death of the insureds family member. Premiums on the disability policy are waived while the benefit is being paid.
Manulife Disability Insurance
Automatic Coverage Enhancements – this feature is included by default if the insured is age 50 or less and qualify for standard premiums.
It automatically increases the coverage amount and premium by 5% each year.
Canada Life Disability Insurance
Lifetime Benefit – Accident and Graded Sickness – Provides a disability income for life – not just to age 65 like most policies.
If you become totally disabled due to injury before age 65 or sickness before age 55 your monthly benefits is payable for life.
If you become disabled after age 55 due to sickness, 100% of your monthly benefits will be payable until age 65. After age 65, your monthly benefit will be reduced based on your age at the time the total disability began – reduces by 10% each year from age 55.
Mortgage Payment Insurance
Brokered mortgage insurance is flexible and customizable. A fully licensed insurance broker can show you a lot more options than your lender.
And do you really want to buy insurance from your lender to protect their risk?
With a broker you can select the benefit period. If you need the coverage but the budget is maxed, you can shorten the benefit period to ensure you have some coverage in force. Even a 2-year benefit period can buy you some time to recover or adjust your plans for the long term.
You may also choose to lower your premium by covering a percentage of the mortgage payment instead of the whole amount. Sometimes having some coverage is better than nothing at all.
Long-Term Disability – Personal
Pay Cheque Protection. Whether you’re a professional, business owner, executive or employee, your ability to earn is your most important asset.
The risk to your earning potential can be managed with an individual disability insurance policy.
Your ability to earn is your most valuable asset.
Disability Insurance will replace a percentage of your pay cheque and enable you to continue paying your bills and living your life if faced with an illness or injury that prevents you from working.
Disability Protection – Business
Protect your independence, productivity and profitability with a policy to cover your salary so you can hire someone to fill your role and keep the business running during your recovery.
Or an income for you if you cannot return to work? There are policies to fund the lump sum payout of a disabled shareholder.
How about something to cover fixed business overhead expenses?
Disability Coverage – Special Risk
There are scenarios where Disability Insurance is not available through the traditional insurers. We have special risk underwriters that specialize in hard to insure situations. Even if you have been declined with another carrier, we can likely find you an insurance policy at a competitive price.
- Dangerous Job or Avocation
- Individuals Working Past Age 65
- High Income / High Limit Needs
- Certain Foreign Travel or Working Expats
- Been Declined for Traditional Insurance
Every individual situation requires special consideration and we can explain your options in simple language that is easy to understand.
Disability Insurance in Ontario, Alberta & British Columbia
Since the Covid-19 pandemic, our advisors work exclusively online with screen sharing, through email and by telephone. Less driving has made us more efficient and flexible with our availability.
We have licensed advisors serving Ontario, Alberta, and British Columbia.