Disabilities are more common than you might think, with roughly 22% of Canada’s population having one or more disabilities in 2017, according to Statistics Canada. That’s where disability insurance comes in. It can protect your livelihood and replace a portion of your paycheck if you can’t work due to an illness or injury.
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Disability insurance pays out a percentage of your salary, usually anywhere from 60% to 85% of your income, if you’re unable to work due to a debilitating injury or illness. It replaces part of your paycheck for a specified period of time. Each insurer will have a list of disabilities that qualify for benefits.
There are two types of coverage:
Short-term disability insurance (STD) typically replaces part of your paycheck for up to 6 months.
Long-term disability insurance (LTD) usually replaces 60% to 70% of your paycheck for 2, 5 or 10 years, or until you reach retirement.
How does disability insurance work?
An important component of disability insurance policies is the elimination period. Also called a waiting period, this is the length of time you’ll wait before you start receiving benefits. It starts on the day you become disabled. With short-term disability insurance, the elimination period usually ranges from 1 to 10 days. And with long-term disability insurance, the options are usually 90 to 120 days. To decide on an elimination period, think about how long you could pay for your own medical bills out-of-pocket before your coverage kicks in.
Once the elimination period ends, the benefit period begins and you’re eligible to collect benefits. The benefit period for STD tends to be a few months long, while LTD pays out up to a specific age or for a set number of years. After the benefit period is over, you’ll stop receiving disability benefits.
What’s the difference between worker’s compensation and disability insurance?
Worker’s compensation protects employees who get injured or become ill on the job, while disability insurance covers debilitating health conditions that aren’t work-related.
What qualifies for disability benefits?
It depends on your insurer, and the type of disability insurance coverage you have. But these are some examples of conditions that could be covered under each policy:
A disabling injury — like a broken leg or hand
A prolonged sickness — such as glandular fever
A musculoskeletal disorder — including acute back pain or spine and joint disorders
A chronic digestive disorder — like gastritis
A mental health condition — such as anxiety or depression
A complicated pregnancy
Musculoskeletal and connective tissue disorders — like osteoarthritis, chronic back pain or slipped disks
Accidental injuries — like brain trauma caused by a car accident
Cardiovascular disorders — such as heart attacks or serious heart conditions
Circulatory disorders — like coronary artery disease
Prolonged mental illnesses — including PTSD and major depressive disorders
How to get disability insurance
If you’re sold on the idea of securing a “replacement paycheck” in the event you can no longer work, here’s how to go about it:
Check for employee-sponsored coverage. Unfortunately, employers are not required to offer any kind of paid sick leave. However, many employers still do provide these programs, so you should check with your employer first.
Buy an individual policy. You can purchase a policy directly from an insurance company. The major benefits of choosing this option are that the coverage is not linked to a specific company, so you can carry it with you even if you change jobs, and you may be able to customize your elimination and benefit periods to suit your financial situation. Just be sure to shop around to get the best possible rate.
Governmental disability benefits. You may be eligible for government disability insurance if you haven’t purchased a private policy and your employer doesn’t offer one. Employment Insurance (EI) sickness benefits can potentially subsidize your income for up to 15 weeks, if you meet a set of minimum requirements. You could also qualify for disability benefits from Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) if you previously contributed to the programs.
Go through a professional association. Some professional associations partner up with disability insurance companies to offer policies at discounted rates.
Check into all your options!
Keep in mind that there may be even more options to help replace your income in case of a disability. For example, Canadian Armed Forces members could receive benefits through the Veterans Affairs Canada Disability Program. Provincial or territorial disability benefits may also be available, like through the Ontario Disability Support Program (ODSP). Before you settle on any benefits, make sure to do your research to determine what you’re eligible for.
Average cost of disability insurance
Your premium will come down to your coverage amount, benefit and elimination period, occupation, health, and where you live. To give you an idea of how much you might pay for coverage, the average cost of a long-term disability insurance policy is 1-3% of your annual income. So, if you earn $65,000 a year, you might pay between $650 and $1,950 a year.
To cut down on your premium, you can:
Increase the elimination period.
Decrease the benefit period.
Reduce your coverage amount.
What happens if I’m disabled but can still work?
The answer lies in your insurer’s definition of disability. There are two types of plans:
Own-occupation disability insurance pays out if you can’t work in your usual occupation, but you can work a different job. If you do start working in another job, any benefits you’re receiving before then may be reduced or stopped.
Any-occupation disability insurance pays benefits if you can’t perform any job. To qualify, you’ll need to prove you don’t have the physical or mental capacity to work.
Is disability insurance worth it?
If you rely on your income to survive and don’t have substantial savings, a disability insurance policy can offer peace of mind. If you become disabled and can no longer work, your coverage will kick in to replace part of your income so you can cover your living and medical expenses.
The best type of policy for you depends on your financial situation. Short-term disability insurance can replace a large percentage of your salary, but the benefit period is limited. As such, it suits those who don’t have an emergency savings fund to fall back on.
On the other hand, long-term disability insurance lasts several years or even until retirement, when CPP steps in. The list of covered illnesses and injuries is far more comprehensive, and includes the likes of arthritis, back pain and heart disease. However, it’s usually more expensive, so factor that into your decision.
Disability insurance pays benefits if you become disabled and can’t work, making it the truest form of income replacement. A policy can help you to cover your living and medical expenses until you’ve recovered from an injury or illness. You can choose between short-term and long-term coverage, which have different elimination and benefit periods — but neither will replace your entire paycheck.
Katia Iervasi is a writer from Sydney, Australia. Her writing — and curiosity — has taken her around the world, and she now calls New York home. With a journalistic eye for detail, she navigates insurance and finance for Finder, so you can splash your cash smartly (and be a pro when the subject pops up at dinner parties).
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