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Disability income insurance is a binding contract between the insurer and the policyholder. In exchange for paying your premiums, the insurer agrees to pay you a monthly benefit if you become disabled and can’t earn a paycheck.
Disability income insurance has a simple goal: to replace part of your monthly income when you can’t work because of an injury or an illness. It helps you buy groceries, pay bills, and cover other expenses to support you and your family. You may not even have to pay tax on your coverage depending on who pays the premiums.
Before purchasing a policy, it is important to consider the monthly premium payments, the different types of policies that define a work disability differently, the size of the monthly benefit, and the length of the payout period.
Purchase a Policy: You can buy an insurance plan either from an insurance company or through your employer.
Pay Premiums: To maintain your income protection coverage, you need to pay regular premiums, usually a percentage of your income.
File a Claim: If you become disabled and are unable to work, you need to file a claim with your insurance company.
Claim Review: The insurance company will review your claim to determine if you're eligible.
Receive Benefits: If your claim is approved, you will start receiving monthly benefit payment, typically a percentage of your pre-disability income.
Use Benefits: The benefit payments you receive are tax-free and can be used to cover living expenses, medical bills, and other financial obligations.
Depending on the policy, the definition of what qualifies as a coverable disability changes. Here are the three different definitions:
41%
of Canadians have a severe or very severe disability
1 in 5
of Canadians over the age of 15 have a disability
1.6 million+
Canadians with disabilities couldn't afford the aids or medication they require
You might assume disability income insurance is only for accidents, but nearly 90% of long-term disabilities result from illnesses, affecting all professions. Without coverage, even a short-term disability can drain savings, cause debt, and lead to financial hardship. Simply put, anyone earning a paycheck benefits from disability insurance; it protects your most valuable asset: your ability to earn a living.
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Premiums are specific to the insured and depend on several factors that will be assessed in a process called disability underwriting. These factors include:
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Own-occupation
Own-occupation disability insurance protects your ability to work in your specific profession, paying benefits even if you can earn income in another role. For example, if a medical professional can no longer work in their specialized field due to illness or injury but can still practice medicine in another capacity, they would still qualify for benefits under this policy.
This type of disability insurance is more flexible than other policies, allowing professionals to receive payouts while working in a different role. However, because of its leniency, own-occupation coverage is typically the most expensive option.
Regular-occupation disability insurance also protects your ability to work in your chosen field but differs from own-occupation coverage. If you become disabled and cannot perform your regular job, you receive full benefits. However, unlike own-occupation policies, if you choose to work in another field, your benefits may be reduced or eliminated. This means that while you are covered for total disability in your profession, you cannot switch to another occupation and still receive full benefits.
Under this standard, you are only considered disabled if you cannot perform the duties of any job, not just your previous occupation. Even if you haven’t taken another job, you may still be ineligible for benefits if you’re deemed fit to work in any capacity. This is the strictest definition of disability. While it often comes with lower premiums, it carries a significant risk—you could become disabled but still be unable to claim benefits if you’re deemed capable of working in another role.
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