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What are my long-term disability insurance options in Canada?

by Mark Cluett
7 min read

No one is impervious to disabilities. Try as you might, draping yourself in bubble wrap and tiptoeing along the streets during your commute will not grant you the powers of invincibility. Furthermore, confining yourself to this careful lifestyle constrains your enjoyment of the life you’ve built for yourself. At the very least, it may prove embarrassing for your immediate family members if you are wearing a football helmet to check the mail.

Accidents, sudden illnesses, and health problems that prevent you from working can happen to anyone, and we have very little control over the circumstances that bring these maladies on. Disability insurance, however, can protect your income in such situations – but how its variations work can be hard to decipher.

Let’s help you understand your options.

What is long-term disability insurance?

First, let’s answer half that question: what is a long-term disability? If a physical, mental, cognitive, or development condition impairs an individual’s ability to perform at work, it may qualify as a long-term disability.

Long-term disability insurance is meant to replace or augment a portion of your income should you become injured or ill and it affects your ability to work. There are three avenues you can explore in regards to your long-term disability options: long-term disability insurance administered through federal or provincial governments such as Employment Insurance (EI), and Canadian Pension Plan (CPP), disability insurance for workplace accidents through the  Workers Safety Insurance board (WSIB) or your provincial equivalent, long-term disability insurance you obtain through your work group benefits, and private disability insurance.

How does federal disability insurance work in Canada?

The federal government offers Canadians disability coverage through plans such as Employment Insurance (EI) or CPP Disability Benefits if they meet certain criteria. 

EI Sickness Benefits provide shot term disaiblity payments for Canadians unable to work because of illness, injury, or other issues. The benefits pay out for a maximum of 15 weeks, after a 1 week waiting period. You can receive up to 55 percent of your earnings, though the maximum benefit amount is $562 per week. EI Sickness Benefits are subject to eligibility conditions of your work history and EI contributions.

In order to qualify for CPP Disability Benefits, an applicant must have contributed to CPP in four of the last six years (or three of the last six years if they already contributed for at least 25 years). They must be under the age of 65, and most of all their injury must be both severe (stops one from doing any type of substantially gainful work) and prolonged (long-term, of indefinite duration or likely to result in death).

CPP Disability Benefits are not some huge windfall. The average Canadian receives less than $1,000 per month, and the maximum monthly payout cannot exceed $1,300. This amount is likely not enough to cover one’s bills and maintain the lifestyle enjoyed prior to the disability. Oh – and it’s considered taxable income.

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What are workers’ compensation benefits and how do they work in Canada?

Workers’ compensation is different for every province and territory, but more or less work the same no matter the jurisdition. The Ontario specific compensation board – the Workplace Safety and Insurance Board (WSIB)  – like its geographic contemporaries – exists to protect employees from financial hardships that come with work-related permanent injuries and conditions; they are solely funded through employer premiums.

These boards operate at arm’s length from employers to make sure employee claims for workplace accidents are administered correctly. These coverages are mandatory for specific categories of employers like those operating in the construction industry – but are optional for other categories of employers.

In cases where you have workers’ compensation coverage through your employer, it may not be what you think it is. Disability insurance offered through WSIB and others covers accidents that happen on the job. If you are injured outside of work, this insurance won’t cover you. It’s compensation model involves lump sum tax-free payments for loss of appendages or senses like sight and hearing due to a workplace accident.

How do group benefits work for disability insurance coverage in Canada?

If you have coverage through work or an association, that’s great, but group disability insurance in Canada has its limitations. You may experience limited coverage and restrictions that are not customizable to your unique coverage needs. And, the payout amount is unlikely to cover your monthly income should you end up needing to utilize your disability coverage.

Whether the plan is offered through an employer, group, or sponsor, one’s enrollment in the group plan is contingent on them continuing with the group. If you change jobs or exit the association, it’s possible you lose coverage and the lower pricing options.

Honest guide to disability insurance

Our Honest Guide To Disability Insurance

How does private Canadian disability insurance work?

Private disability insurance in Canada allows people to have a disability insurance plan they can truly call their own. You individually own and manage your completely customized disability insurance plan.

Rather than limiting yourself to one-size-fits-all payout plans, you can take advantage of the maximum monthly disability insurance coverage your individual circumstances call for and also add on additional amounts and coverage features (such as own or regular occupation, partial disability, cost of living adjustment) as needed. 

Unlike group plans, individual plans can follow Canadians wherever they go in the country. It doesn’t matter if employers change or groups are disbanded.

The price of the individual plan is based on the amount of coverage the individual purchases, their age, gender, occupation. The price of the plan will not increase during the term you outline when you first enact it. Canadians can enjoy the disability benefits tax-free if they pay their premiums using their taxed income.

Long-term benefits have a waiting period, that typically begins after sick leave and/or short-term disability benefits offered by your employer end. Depending on the long-term disability plan one has in place, Canadian citizens may have part of their income replaced for up to 2 years, or 5 years, up to age 65 or until the individual is able to return to regular employment, whichever comes first.

How do I find out more about disability insurance?

If you are stilling wondering, “How does disability insurance work?”, read our full Honest Guide to Disability Insurance, or schedule a call with one of PolicyAdvisor’s licensed brokers to discuss your current disability coverage and your options.

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