Disability Insurance

Enables you to protect your number one asset - your ability to earn an income.

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What is disability insurance?

Disability insurance is a critical financial safety net, offering a monthly, tax-free cash benefit in the event that an injury or illness hinders your ability to work and earn an income. Disability insurance is specifically designed to substitute a portion of your income that is lost due to disability. You can choose to spend the funds as you see fit.

Often, there's a misconception that disabilities are always physically apparent. However, it's important to recognize that disabilities encompass a broad spectrum, including not only physical impairments but also serious illnesses and mental health conditions that may not be immediately visible.

The duration of disabilities can greatly vary, ranging from short-term to long-term conditions. Each scenario requires different levels of financial and personal adjustment.

The absence of a regular income can jeopardize your ability to fulfill financial commitments and sustain your family's needs. Additionally, such a situation might force you to dip into your retirement savings, thereby derailing your long-term financial plans. Disability insurance serves as an essential tool to safeguard your income, ensuring that you can maintain your financial responsibilities and stay on course with your future financial goals.

Monthly income

A regular monthly cash benefit payment that you can use for whatever you need.

Fills Coverage Gap

Canada Pension Plan (CPP) disability benefits are limited and may be more restrictive.

Portable

Most employer plans end if you leave your job. Individual disability plans can go with you throughout your career(s).

Personalized

Disability coverage can be customized based on your unique personal needs.

How does disability insurance work?

Selecting Your Coverage: Begin by working with an advisor to determine the amount of coverage you need, which will dictate the level of financial support you'll receive in case of disability.
Premium Payments: Regular premium payments are required to maintain your coverage. These premiums vary based on your chosen coverage amount, age, occupation, and other factors.
Filing a Claim: In the event that you become disabled, you will need to file a claim with your insurance provider.
Commencement of Benefits: After the completion of the waiting period, often referred to as the 'Elimination Period', your monthly tax-free benefits will begin. This waiting period is a predefined duration that starts from the onset of your disability and lasts until the benefits kick in.
Utilization of Benefits: The cash benefit you receive can be used at your discretion, aiding in financial stability and recovery efforts. This flexibility allows you to allocate funds where they are most needed, whether for medical expenses, daily living costs, or other financial obligations.
Duration of Payments: These benefit payments continue either until the end of the predetermined benefit period or until you are able to return to work, whichever occurs first. It's important to understand the terms of your policy regarding the length of the benefit period and conditions for the cessation of payments.

Income Protection

Why should you have disability insurance?

If you are in your working years, disability insurance should be a foundational component of your insurance planning and risk management strategy. Your ability to earn an income is your most important asset - because without income it's usually impossible to pay for all the other important things in life.

It's common

On average, 1 in 3 Canadians become disabled for 90 days or longer before age 65.

Replace lost income

You receive a substantial portion of your pre-disability income so you can stay on track financially.

Protect your savings

Your retirement savings are earmarked for retirement, not medical bills.

Focus on recovery

Recover easier knowing you're financially secure and have cash to pay for your regular expenses.

Safeguarding Your Greatest Asset

We tend to regard tangible assets like our homes, cars, or investment portfolios as our most valuable possessions, however our capacity to earn an income surpasses all these in value. Our ability to earn an income is the foundation upon which all other assets are built and maintained.

To illustrate the true value of your earning potential, consider the table below. It projects your potential career earnings up to the age of 65, based on your current annual income. This projection assumes an annual increase of 2.5%, reflecting typical career advancements and raises. This perspective helps in understanding just how significant your earning ability is over the course of your career.

Annual Income

Age 30

Age 40

Age 50

$36,000

$1,977,415

$1,229,679

$430,366

$48,000

$2,636,553

$1,639,572

$860,732

$60,000

$3,295,692

$2,049,465

$1,075,915

$72,000

$3,954,830

$2,459,359

$1,291,098

$84,000

$4,613,969

$2,869,252

$1,506,281

$96,000

$5,273,107

$3,279,145

$1,721,464

$120,000

$6,591,384

$4,098,931

$2,151,831

$180,000

$9,887,077

$6,148,397

$3,227,746

Source: RBC Insurance

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Cost

How much does disability insurance cost?

There are a number of factors that can affect plan pricing, including:

Age & Gender

Generally, insurance cost less for younger age groups, and more for older age groups. Females are statistically more likely to have more prolonged disabilities compared to males.

Occupation

Insurance costs are affected by the relative risk associated with your profession.

Coverage amount

Naturally, larger coverage amounts cost more than lower coverage amounts.

Benefit period

This is how long your policy will pay a benefit for. The longer the duration, the higher the cost.

Waiting period

This is how long you must wait before your policy will begin to pay a benefit. Shorter the duration, the higher the cost.

Health history

Insurance cost can be affected by health history. Cost will be lower when there is little history.

How much disability insurance can you get?

Your income will dictate how much coverage you are eligible for. Each insurance company will have it's own guidelines as to what percentage of your income they will insure.

The following table is intended to offer a sense of the maximum amount you could potentially receive tax-free each month in the event of a disability claim. These are just approximate figures – your actual maximum benefit amount will depend on factors such as insurance company, as well as age and occupation. Your insurance advisor can assist you in calculating what benefit amounts you may be eligible for.

Annual Income

Maximum Monthly Benefit

$35,000

$2,200

$50,000

$3,000

$100,000

$5,200

$120,000

$5,925

$140,000

$6,625

$200,000

$8,550

$36,000

$16,050

$1,000,000

$25,000

Source: RBC Insurance

What is included in my government disability benefits?

In the event you become disabled you may be eligible for Canada Pension Plan (CPP), and Quebec Pension Plan (QPP), however it is important to understand they offer limited benefits and may be difficult to qualify for due to the definitions of disability those programs use.

Definition of disability

In order to qualify for disability benefits under CPP/QPP, one must “have a severe and prolonged mental or physical disability”. You may be able to get your own individual disability policy with a more relaxed definition.

Monthly benefit amount

Under CPP disability the maximum disability benefit is $1,464.83 per month as of 2022. The average disability benefit paid out as of October 2021 was $1,050.29 per month. These amounts are taxable, and are therefore included in your taxable income.

Is Employer-Provided Disability Insurance Sufficient for Your Needs?

While employer-provided group disability insurance is a valuable foundation, it often offers limited coverage. Supplementing it with a personal disability policy can enhance your protection, ensuring comprehensive security for you, your family, and your lifestyle in case of unforeseen circumstances.

Group Coverage

Individual coverage

Coverage Amount

The benefit is typically predefined and may only cover a portion of your salary.

You have the autonomy to select a benefit amount that aligns with your needs and income.

Flexibility

The options are selected by your employer, offering limited customization.

Choose both the scope and duration of coverage to match your personal requirements.

Policy Changes

Adjustments are usually permitted annually or during significant life events.

Offers the flexibility to modify coverage as needed.

Job Transition & Portability

Benefits typically cease if employment ends, although conversion to a personal policy might be possible.

The policy is not tied to your employment, ensuring continuous protection, and portability throughout your career(s).

Cost

This is generally a low-cost benefit, but premiums may vary annually.

Individual policies tend to have higher premiums, but the cost remains consistent throughout the policy term, or follows a pre-defined premium schedule.

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Frequently asked questions

Answers to key questions about Disability Insurance

Doesn't the Canadian government offer disability coverage?

Yes, the Canadian government provides disability coverage through the Canada Pension Plan (CPP). As of 2023, the maximum monthly CPP disability benefit is $1,538.67. This amount, while offering essential support, is generally lower than what private disability insurance plans can offer. Private plans may provide benefits up to $25,000 per month, depending on various factors such as your occupation and pre-disability income.

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Furthermore, the CPP requires a severe and prolonged disability for eligibility, whereas private plans might have more lenient definitions of disability, potentially allowing for benefits under a broader range of conditions.

What types of disabilities are covered by disability insurance?

Disability insurance covers a range of conditions, not just those that are physically visible. It includes chronic pain and mental health issues, ensuring a broad spectrum of disabilities are eligible for coverage.

Why should I consider an additional disability policy if I already have one through my work?

Evaluating your employer-sponsored disability policy is crucial to determine if additional coverage is necessary. Consider these aspects:

Income Replacement: Assess how much of your salary the employer-sponsored plan covers. Is it sufficient to meet your needs if you're unable to work?
Scope of Coverage: Does the plan cover both illnesses and injuries? Understand the extent of the protection provided.
Coverage Timing: Are you protected only during work hours, or does the coverage extend to 24/7?
Rehabilitation Services: Check if the plan includes support for returning to work, which can be vital for a smooth transition.
Definition of Disability: Understand how 'disability' is defined in your plan. This definition can significantly impact your eligibility for benefits.

An individual policy, has the advantage of portability – it stays with you even if you change jobs. After reviewing these factors, you might find that your employer's plan doesn't fully meet your needs, indicating the potential benefit of additional coverage.

How does my current age and salary impact the value of disability insurance?

Your potential lifetime earnings, based on your current age and salary, are a key factor in determining the value of disability insurance. For example, a 30-year-old earning $70,000 annually could earn around $3.8 million by age 65. Disability insurance helps protect this earning potential.

How much disability insurance should I have?

To determine the right amount of disability insurance, consider the income needed to maintain your current lifestyle if you're unable to work. Start by calculating your monthly fixed living expenses, including necessities like food, housing, transportation, utilities, and other essential costs. Then, subtract any other income you might receive during a disability, such as returns from investments, rental income, or existing disability insurance benefits. The shortfall between your expenses and this additional income represents the coverage you need. Remember, disability insurance typically replaces only a portion of your pre-disability income.