What Is Disability Insurance?

Have you ever considered what would happen if you got sick or injured and couldn’t earn an income for months—or even years? How would you manage? That’s the scenario that disability insurance helps to protect you against.

Like many other Canadians, you likely wake up and then begin your workday, so you can pay for everything you need, from shelter to clothing to food. You might get to enjoy some “extras,” too, such as a family vacation, multiple streaming services, or an occasional dinner out with pals. It would be comforting to know that if an injury or illness prevented you from working, you’d still be able to pay your bills.

Here’s what you need to know to help you decide if an individual disability insurance plan is right for you.

Key takeaways

• Disability insurance helps protect your income if you’re unable to work for a period of time due to injury or illness.
• There are several types of disability insurance, including group plans purchased by employers for their employees and coverage through government programs such as Employment Insurance and the Canada Pension Plan.
• Even if you qualify for government benefits or have a group plan through work, you may still have gaps in your coverage.
• With the right plan or combination of plans, you may be able to get up to 100 per cent coverage for your income if you become sick or injured. You may also gain access to special services that can help you return to work sooner.
• You’ll especially want to consider an individual disability insurance plan if you’re self-employed or are a high-income earner.

What is disability insurance?

Disability insurance helps to protect your income in case you aren’t able to work because of injury or illness. If, for example, you break your arm and can’t work, it can provide financial support to help you pay your bills. Your insurance may also include special services, such as additional training and/or work-site modification, to help you transition back to work when you’re ready.

What are the different types of disability insurance?

There are a several different types of disability insurance in Canada. Some are provided by employers or the government and others are purchased by individuals.

• Short-term disability (STD) insurance: This type of coverage typically lasts for up to six months. Sometimes, employers will have an STD plan for employees that provides some support. Chat with your employer’s human resources (HR) department if you’re curious about whether or not you have a plan and what it covers.
• Long-term disability (LTD) insurance: Long-term disability insurance tends to kick in after STD insurance ends. Typically, these benefits last for up to two years or up to a maximum dollar amount. Your employer may have a plan for its employees. Your employer’s HR department will know the details.
• Employment Insurance (EI): The government’s EI plan includes benefits if you can’t work for medical reasons. It’s capped at 55 per cent of your earnings to a maximum of $650 per week for up to 26 weeks.
• Canada Pension Plan (CPP) disability benefits: If you pay into the Canada Pension Plan and are under 65 years of age, you may be able to claim benefits if you have a disability that regularly prevents you from working.
• Individual disability insurance: You can purchase your own coverage to help fill in the gaps left by other insurance plans or to protect yourself if you’re self-employed. This is also sometimes referred to as “illness and injury insurance.”

How does disability insurance work?

At its most basic, disability insurance involves paying a fee (typically monthly) in exchange for financial support if you become sick or injured. It’s a way to ensure there’s money coming in when you’re unable to work. Here are some ways in which your income can be protected:

• Your employer pays into a group disability insurance plan on your behalf or takes money off your paycheque to help cover the cost.
• You pay an insurance provider for your own individual coverage.
• You receive funds from the government through CPP or EI.
• You receive funds from some combination of the above.

With the right insurance plan or combination of insurance plans, you may be protected for up to 100 per cent of your income, even in cases of mental illness. It’s important to be familiar with your policies, so you can receive the maximum amount of benefits available to you from all your plans.

On top of a monthly payout, some types of individual disability insurance provide additional services to help you get back to work sooner.

• Work conditioning: Rehab and occupational therapy treatments may be covered by your insurance.
• Work-site modification: If you need special accommodations at work to be able to return (such as a different piece of equipment or a change to your desk set-up), this benefit may help pay for them.
• Transferable skills analysis: If you can’t return to your regular job, you could receive help identifying other jobs that suit you based on your education, training, and experience.
• Job search assistance: This can help you with resumé prep, interview practice, training courses, and more.
• Assistive devices: Need a wheelchair, walker, prosthesis, hearing aid, or some other device? Your plan might pay for them.
• Dependant care: If you need help caring for kids or aging parents, so you can go to a rehab program, this benefit may ease the costs.

Is disability insurance tax deductible?

Disability insurance premiums themselves are generally not tax deductible. However, in the case that you have an injury or illness and need to use your disability insurance, the benefits will often be tax free if you pay the premiums yourself.

If your employer pays all or part of your premiums, then your benefits will count as income and be taxed.

What types of illness or injury does disability insurance cover?

It depends. Some types of disability insurance cover only injury (called an “accident-only policy”) or only illness (such as critical-illness insurance), while others apply to both, but have exceptions or limitations. You may be covered in these types of instances:

• You’re in a car accident and need months of rehab.
• You fall off your bike and break an arm—and your job requires full use of both hands.
• You experience mental health issues that prevent you from working.

Who should consider disability insurance?

Do you have a job? Do you have a stack of bills to pay each month? If you couldn’t work for six months, would you struggle to support your family and maintain your current lifestyle?

If you answered “yes” to all of these questions, you might want to consider disability insurance.

Here’s who else might benefit from disability insurance.

• Self-employed people and business owners: Being your own boss can be a huge perk, but it also means you have no one to catch you if you fall. Disability insurance can offer you that protection.
• Workers in trades, construction, and agriculture: Anyone with a job that has a high risk for injury and also requires full use of their body (from carpenters to farmers) should consider disability insurance.
• Executives, doctors, and lawyers (and other high-income earners): If you have a high level of income and the lifestyle that goes with it, disability insurance can help protect you in cases where you can’t earn for a period of time.
• Anyone who doesn’t have group coverage through work or who wants to top up their coverage: Some people have disability insurance through work, and others don’t. If you don’t have any kind of insurance, consider paying for it yourself. And if you do have some coverage, check to see if it’s enough, or if you should purchase a little extra.

Just about anyone who has an income (and bills to pay) should think about getting disability insurance. At the very least, you’ll have confidence that you and your family are protected if you’re unable to work for a few months—or even years.

What are the benefits of having an individual disability insurance policy?

When you purchase your own disability insurance policy, you simply have more options. Here are a few possible advantages.

• Coverage can’t be cancelled: As long as you pay your premiums, your coverage will continue—no matter what.
• Premiums remain stable: It’s possible to lock in your rate for non-cancellable types of individual disability insurance.
• Wider definitions of “disability”: Individual disability insurance plans tend to cover more types of injury and illness than group plans.
• Option for an “own occupation” rider: Some occupations make you eligible to add an “own occupation” (a.k.a. “own-occ”) rider to your plan, so you’ll receive benefits if you can’t work in your previous occupation, even if you can find work in another type of job.
• Portability: If you change jobs, your coverage goes along with you.
• Cost: Individual plans have more versatility than group plans, so you might find a type of disability insurance that will cost you less in the long run.
• Option to include additional benefits: Since you’re purchasing the insurance for yourself (rather than your employer paying for it for everyone at the company), there’s more flexibility with the benefits you choose to receive.
• Taxation: If you pay for your own insurance plan using income that’s already been taxed, any benefits you claim will be tax free.

What to look for in an insurance company offering disability insurance plans

Before purchasing any type of disability insurance, you’ll want to ask a few questions about the provider and the insurance plans it offers.

• Terms and conditions
  • How do they define “disability”?
  • Are there any exclusions or limitations, such as pre-existing conditions?
  • What do I need to do to obtain coverage? E.g., provide medical information and/or financial information?
• Coverage options
  • How much money will I receive each month if I’m sick or injured? (What percentage of my income will be paid? Is there a dollar limit?)
  • Can I increase my coverage after getting the policy?
  • How long will I need to wait before I receive my first payment?
  • Are the benefits taxable?
  • Will the benefits be adjusted for inflation?
  • How long am I able to receive my benefits?
  • Can I still receive benefits if I’m able to do some work, but not my usual amount?
  • Do they offer any unique options (such as an own occupation rider)?
• Premiums
  • How much will it cost me?
  • Can I lock in my rate?
  • Will I have to pay my premiums while I’m collecting my benefits?
• Return-to-work assistance
  • What extra services do they provide to help me return to work?
• Access to medical professionals
  • Do they have the ability to speed up access to specialists and other health-care professionals whose expertise might help my recovery?
• Claims process
  • How does their claims process work?
  • Who handles cases? What is their experience and knowledge level?

What is the disability insurance claim process?

In an ideal world, you wouldn’t need disability insurance, because you’d never get sick or injured. In the real world, you never know what might happen. Here’s how you would claim your benefits with RBC Insurance if you became sick or injured.

How do I make a claim?

You’ll need to fill out a claim form.

1. If you have a group plan: Check in with your HR department to get the form.
2. If you have an individual plan: Speak with the advisor who helped you buy the policy.

This form has various sections for you, your doctor, and your employer (if you have one) to fill out. Submit your completed form as early as you can after you become ill or injured, so you receive the benefits you qualify for as quickly as possible.

What happens after a disability insurance claim is made?

If you’re an RBC Insurance client, your submitted claim form will be assigned to a customer care specialist who has training in your specific injury or illness and will personally handle your case. They’ll contact you within 10 business days. Here’s what to expect.

• Claim review: Your customer care specialist will call you to learn about your situation. They’ll ask questions about your condition and the potential amount of time you’ll be away from work, as well as arrange for payment of the financial benefits that you qualify for. They may also speak with your employer and physician if they need more info.
• Decision process: It may take some time to understand your claim. Some situations, such as recovery following a routine surgery, are straightforward, and your benefits can begin almost immediately. If your claim is more complicated, it may take longer for your customer care specialist to gather all the necessary information about your financial, medical, and employment history. You will receive a written update on the status of your claim every 30 days until a decision has been reached.
• Asking questions: If you ever have any questions or concerns, you can speak directly with your customer care specialist using a toll-free number. This specialist is your single point of contact and is familiar with your unique situation.

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