Disability insurance

Disability insurance is an policy that pays benefits to a beneficiary when the policy holder suffers a disability that impacts their ability to work. Essentially disability insurance is designed to protect you from the possible loss of income. Disability insurance is available through a variety of plans: individual plans; group plans (employer, union, associations); and government plans. Many plans have two components, short-term disability (STD) and long-term disability (LTD). Disability insurance is not Employment Insurance Sickness Benefits, although should you claim benefits there may be interactions.

Disability benefits typically replace up to 60 to 85 per cent of your regular income.

Some statistics

 * A typical 30-year-old is four times more likely to become disabled than die before age 65.
 * One in six Canadians will be disabled for three months or more before age 50, and one in three before age 65.
 * The average length of a disability that lasts over 90 days is 2.9 years.

Short-term disability
For short-term disability, you are usually required to provide a medical indicating your condition and your expected date of return.

Short-term disability plans pay a percentage of normal earnings – for example, 70 per cent – up to a certain length of time. Typically, this can be up to 15, 26 or 52 weeks. Some employers, however, choose not to provide short-term disability benefits, relying instead on Employment Insurance (EI) disability benefits. The amount you receive from EI sickness benefits may be impacted by amounts received from STD plans.

Long-term disability
The definition of disability for long-term disability tends to mirror the definition for the Canada Pension Plan Disability Benefit. Most plans consider someone disabled if in the first two years they are unable to perform their own occupation, and any occupation (total disability) they are reasonably qualified to do if they are off work longer than two years.

This coverage starts when your short-term disability (or EI) benefits run out. Typically, the goal is to replace 60 to 70 per cent of your normal income, but there is always a maximum dollar amount.

Definitions of occupation
In general, there are three possible definitions of "occupation" in disability insurance policies:
 * "regular occupation" is the occupation in which you were engaged at the time of disability. If you can perform another occupation than your regular one while disabled, but choose not to, you get still disability benefits.
 * "own occupation" is like regular occupation but "if you are able to work in another occupation, and choose to, total disability benefits will continue to be paid", on top of your wages.
 * "any occupation" means that you are unable to perform any type of work. This is least favorable definition: if you can perform another occupation than your regular one while disabled, but choose not to, you do not get disability benefits.

Employee benefit
Although STD and LTD benefits are offered by many companies, you should be aware there is no standardization, the terms and conditions depend on the companies and coverage providers. You are advised to review the terms and conditions of your specific plans.

If you decide that your group LTD coverage is not sufficient, you can purchase an individual policy to supplement it. For example, if your group plan over covers only total disability for any occupation after two years, but you only want to work in your regular occupation, you could purchase an individual plan with a regular occupation definition and a two-year waiting period.

Tax considerations
Some plans pay tax-free benefits while others are taxable.