How long do I need disability insurance in Canada?

The answer to how long you need disability insurance coverage depends on one thing: how long you could manage without your paycheque. Some people only need coverage for a temporary gap. Others need protection that could last for years if they cannot return to work. To decide, look at short-term and long-term disability benefit length, waiting period, and any other income support you have.

How long should my disability coverage last?

The length of disability coverage depends on whether you have short-term or long-term disability insurance, with benefits lasting from a few weeks to several years or until retirement age.

How long does short term disability insurance last?

Short-term disability insurance provides benefits for 6 to 26 weeks, although some policies may offer coverage for up to 52 weeks. It is designed to replace part of your income while you recover from a temporary illness or injury that prevents you from working. The exact benefit period depends on your policy. Once the short-term benefit period ends, long-term disability insurance will kick in and provide continued income replacement if you remain disabled.

How long does long term disability insurance last?

Long-term disability insurance can provide benefits for 2 years, 5 years, 10 years, or until age 65 or 67, depending on the policy. A longer benefit period provides income protection for a longer time but may come with higher premiums. For someone who depends on their employment income for a longer duration, coverage that extends to age 65 or 67 can provide protection throughout most of their working years.

What factors should I consider when choosing the coverage period for disability insurance?

When choosing a disability insurance coverage period, match the length of your income protection to your age, financial obligations, expected working years, and budget. However, some people choose to cover only the financially riskiest years of their working life when their dependents rely most on their monthly income, and they have significant financial obligations.

• Age and retirement timeline: Your expected working years can help determine how long you may need income protection. Choose a coverage period that will align with your retirement age. If your retirement age is closer, you can choose a shorter 2- or 5-year coverage duration
• Short-term vs. long-term needs: Decide whether you need coverage for a temporary period or longer-term protection. Since serious illnesses and chronic injuries can last for years, long-term disability coverage may provide more appropriate and sustained income protection
• Savings and investments: If you have substantial savings, they may give you more flexibility to choose a shorter coverage period
• Employer benefits: Review how long your employer’s short- and long-term disability coverage lasts to identify any gaps
• Policy terms and limits: Check the insurer’s eligibility requirements, exclusions, and limits that may affect how long your coverage can provide benefits
• Monthly expenses and debt: Mortgage payments, loans, and other ongoing expenses may make longer income protection more important
• Coverage cost: Longer coverage periods generally cost more, so choose an option that provides sufficient protection within your budget
• Alternatives: Check if your employer provides disability benefits. If you already have employer-sponsored basic short-term support, you can focus your personal budget entirely on a long-term coverage period

Group vs. individual disability: Is the coverage duration the same?

No, group and individual disability insurance can have different coverage durations, definitions of disability, and conditions for continuing benefits.

• Group disability insurance: The coverage duration, benefit period, and definition of disability are generally determined by the employer’s plan. Some plans may change from an “own occupation” to an “any occupation” definition after a specified period
• Individual disability insurance: You generally have more control over the benefit period and can choose options such as 2, 5, or 10 years, or coverage to age 65 or 67, depending on the insurer. Individual policies may also offer greater flexibility in the definition of disability and other coverage features

Moreover, group coverage is tied to your employment and may change if you change jobs or your employer changes the plan. Individual disability insurance is portable, so you can maintain the policy regardless of your employer, as long as you continue meeting its terms and paying premiums.

Common mistakes when choosing a disability benefit period

Avoid these common mistakes when choosing the disability insurance coverage period:

• Choosing a shorter benefit period to save on premiums: Lower premiums may leave you without income protection if your disability lasts longer than the policy’s benefit period. Compare how much income the policy protects and how long it provides that protection, not just the cost
• Assuming employer coverage is enough: Check your group plan’s benefit period, coverage amount, and definition of disability before relying on it as your only protection
• Confusing the elimination and benefit periods: The elimination period is the waiting time before benefits begin; the benefit period determines how long benefits can be paid
• Ignoring your financial situation: Consider your savings, income, expenses, debt, employer coverage, and expected working years when choosing your coverage. For instance, avoid choosing a shorter waiting period of 30 days when you know your savings can easily last for three to four months. Longer elimination periods (e.g., 90-180 days) can reduce premiums

What happens when the disability insurance coverage period ends?

Disability insurance benefits end when you recover and return to work, reach the policy’s maximum benefit period, or no longer meet the policy’s definition of disability. Once benefits end, you need to rely on your employment income, savings, or other sources of income. If your disability continues until the end of the benefit period, the insurer will stop payments even if you remain unable to work. This is why choosing a benefit period that aligns with your financial needs and expected working years is important.

Do I lose my life insurance if I use my disability insurance?

No, using disability insurance does not affect your life insurance coverage. Life insurance and disability insurance are separate types of coverage with different purposes.

For life insurance coverage to pay out to one’s beneficiaries, the insured person must be deceased. In contrast, disability payouts can only be paid to a living policyholder.

Receiving a disability insurance benefit should not interfere with your life insurance coverage as long as you don’t stop paying your life insurance premiums. Some life policies give you the option to add optional riders to your life insurance policy. These riders can provide you with variations on disability insurance coverage. For example, an accelerated death benefit rider will allow you access to a portion of your death benefit in the event that you develop a disabling or terminal illness.

Protect your earnings with disability coverage

It’s important to consider what can happen if an injury or sickness hinders your ability to work. This is especially important in the prime of your income-earning years, when you are more likely to qualify for disability coverage at a lower premium.

PolicyAdvisor has years of experience helping Canadians with disability insurance and can help you understand your current disability benefits and assist you in filling any gaps in coverage.