What is disability insurance?

• The definition of disability — own occupation, regular occupation or any occupation — is the most important term.
• Benefits typically replace 60% to 85% of pre-disability earned income, subject to limits.
• Personally paid premiums generally produce non-taxable benefits; employer-paid plans are often taxable.
• Non-cancellable contracts cannot have premiums or terms changed by the insurer.
• Group long-term disability coverage usually ends when employment ends.

An own-occupation definition pays if you cannot perform the duties of your specific occupation, even if you could work elsewhere. An any-occupation definition is far more restrictive. Many group plans switch from a regular-occupation definition to an any-occupation definition after 24 months.

A longer waiting period lowers the premium but requires more emergency savings. The benefit period determines how long payments last; a short benefit period leaves long-term disability risk uncovered, which is the risk most damaging to a financial plan.

Business owners and incorporated professionals generally have no group coverage and may also consider business overhead expense coverage, which reimburses fixed business costs during a disability.

• CPP disability benefits are modest and have strict eligibility criteria.
• Income verification is required at claim time for many contracts.
• Pre-existing conditions, mental health and musculoskeletal claims may have specific limitations.

• Disability benefits and income support in Canada — Government of Canada
• Insurance and financial basics for consumers — Financial Consumer Agency of Canada
• Life and health insurance in Canada — industry resources — CLHIA