Long Term Disability Insurance Options

Long-term disability insurance provides some assurance that you’ll have income even if you can no longer work for a prolonged period because of sickness or injury.

It’s a financial tool that works for you when you can’t, allowing you to maintain your standard of living during tough times. 

Long-term disability insurance is worth the cost for almost everyone who relies on their income, but it is particularly essential for those with dependents, limited assets, or a high-paying job.

We’ve put together this guide to help you find out everything you need to know about long-term disability insurance to secure the right policy. 

What is long-term disability insurance?

Long-term disability insurance covers your biggest asset: your ability to work. If you are unable to work due to illness or injury for an extended period, your policy pays a monthly benefit amount. You can use this money for whatever you need, including to cover out-of-pocket medical expenses, daily living bills, monthly expenses, and debt payments. 

In Canada, you can long-term disability coverage in the following four ways:

• Federal or provincial programs, such as the Canadian Pension Plan (CPP) or Employment Insurance (EI)
• Disability insurance through the Workplace Safety Insurance Board (WSIB) or a provincial equivalent 
• Group disability insurance 
• Personal disability insurance

How does long-term insurance work?

Long-term disability insurance is a legal contract between you and the insurer. In exchange of premium payments, the insurance provider promises to pay a certain monthly benefit amount if you fall sick or become injured and cannot work. Most long-term disability plans pay anywhere between 60% to 80% of your pre-disability income. 

The benefits are paid for a pre-determined period — such as 5 years, 10 years, or until retirement age — or until you return to work. To be eligible for long-term disability benefits, you must meet insurer’s definition of disability and survive a specific period after developing a disability.

Types of Disability Insurance in Canada

The following table gives a brief description of various long-term disability insurance options and other types of disability insurance available in Canada. 

Key Disability Terms

When shopping for disability insurance, you’re likely to come across some technical terms, such as: 

Own-occupation disability insurance

This type of policy pays benefits if you cannot perform the duties of your own occupation. Let’s say, you have a highly stressful job that has taken a toll on your mental health, causing an anxiety disorder, and you can no longer perform your job duties. 

In this case, your insurance plan will pay the disability benefits, and the insurer will not require you to take up a less stressful job. You will continue to receive benefits even if you become gainfully employed in another occupation. 

The own-occupation definition of disability provides the greatest level of income protection cover. 

Any-occupation disability insurance

It pays if you cannot perform the duties of any occupation for which you are reasonably qualified based on your education, training, and experience. So, in the above example, if you can work in a less stressful job and have an any-occupation policy, you’ll not receive benefits. This definition of disability offers the lowest level of income protection cover.   

Regular-occupation disability insurance

It pays disability benefits if you become disabled from doing your specific job and are not gainfully employed in another job. Continuing with our example, if you have a regular occupation plan, you will be eligible for benefit payments only if you don’t take up another job. Regular-occupation provides coverage that is less comprehensive than own occupation but more robust than any occupation. 

Two-year-own-occupation policy 

For the first 24 months of a disability, you are considered totally disabled, and hence are eligible for benefits, if you are unable to work in your regular occupation. After two years, you’ll receive benefits only if you are unable to perform main duties of any occupation suitable by education, training, or experience. 

In other words, for the first 2 years of a disability, your policy follows the own-occupation definition of disability. After the 2-year-period, it switches to the any-occupation definition. 

Waiting period

A waiting period, also known as elimination period, is the amount of time between the beginning of a disability and receiving benefit payments. The most common waiting period for long-term disability is 90 days, but it can range from anywhere between 30 to 365 days.  

Benefit period

It refers to the length of time for which your policy will pay a monthly benefit. The benefit period can be between 2 to 10 years, or it can continue until you turn 65. In the event of disability, your plan pays monthly benefits for the period agreed in your policy or until you’re fit enough to work. 

Partial disability benefits

Partial disability is defined as: an injury or illness that affects your ability to perform some work. Yet, you retain some ability to work and aren’t completely incapacitated. For example, imagine your job involves writing blogs and giving presentations.

If you are diagnosed with carpal tunnel syndrome, typing for extended periods might become painful. However, you can still give presentations without much difficulty. In this scenario, you may be eligible for partial disability benefits

Any injury or illness that limits your ability to work full-time in your current job. For example, let’s say you’re a teacher and have to stand for long periods, giving lectures and interacting with students.

If you develop a chronic condition, like multiple sclerosis, you might be able to work only part-time. If your policy includes partial disability benefits, the insurer may pay a certain amount each month to help make up for the lost income. 

Who is long-term disability insurance for?

If you think about it, your biggest asset is your ability to earn, not your home or car. How will you support your family if an injury or illness prevents you from working for a long period? Unfortunately, that possibility is greater than most people think.

Currently, one in seven Canadians has a disability, and one in three working Canadians will experience a disability lasting more than 90 days at some point in their careers. This is where long-term disability insurance can step in by providing financial support when you may need it most. 

Getting long-term disability insurance is a smart move for almost everyone who has income. It’s especially valuable if you’ve got people depending on you financially, are self-employed or a highly-skilled professional, or don’t have reserve assets. 

How to Apply for Long-Term Disability?

Buying long-term disability coverage is a fairly simple and easy process and involves these steps: 

Calculate your coverage needs

Determine the amount of coverage you need, length of time you’ll need it for, and the waiting period that works best for you.

Consider riders

Some add-ons worth considering are cost-of-living adjustment rider, future purchase option benefit, and supplemental disability income benefit. Riders let you customize your coverage based on your needs, priorities, and goals. 

Shop around 

It’s smart to compare the pricing and offerings of multiple companies so you can get coverage that offers best value for money.

Apply for coverage

After you’ve selected a disability insurance company and product, fill out the application form. Provide accurate, correct information, as lying or withholding key information could result in denial of coverage, cancellation of policy later on, or even denial of claim if you are injured or fall sick.   

Take a medical exam

Generally, companies require you to take a paramedical exam. They may also ask for an Attending Physician Statement (APS) from a doctor that has treated or is currently treating you. 

Sign the contract and make the first premium payment 

Within four to six weeks, the insurance carrier will issue your policy. To start your long-term disability insurance coverage, please sign and return the policy documents and pay the initial premium.  

How much does long-term disability cost?

The cost of long-term disability ranges between 1% and 3% of your salary. Generally speaking, the premium cost goes up as coverage level increases. Since benefit payments are based on the insured’s salary, high-income earners typically pay for more coverage. 

Other factors that impact the monthly premium are: 

• Occupation: The more day-to-day hazards involved in your job, the more you’ll pay for coverage. So, a person with a construction job will receive higher premiums than someone who sits in an office all day. 
• Waiting period: A shorter waiting period will increase the premium cost. 
• Benefit period: The greater the benefit period, the higher the premiums. 
• Definition of incapacity: Own-occupation disability insurance is more expensive than any-occupation insurance. 
• Your choice of insurer: Every disability insurance company has its own method of evaluating the level of risk you pose. Therefore, premium rates for the same coverage may vary by insurer. 

Do I need a personal policy if I have long-term disability cover through work?

Yes, you may. Many Canadian employers offer their employees group disability insurance for free or at a reduced cost. However, group disability insurance coverage has two main drawbacks: 

1. You’ve limited options to tailor it to your needs 
2. The coverage is typically tied to the job, meaning you’ll likely lose it if you change jobs or get fired. 

For these reasons, supplementing group coverage with an individual policy is often a smart decision.  

Which are the top disability insurance companies in Canada? 

Some of the leading disability insurance providers in Canada are Sun Life, Manulife, Desjardins, Canada Life, Empire Life, and RBC Insurance. However, just like the people who buy and use it, disability insurance comes in all shapes and sizes.

This is why there’s no one-size-fits-all insurance provider that’s perfect for everyone. It’s quite possible that an insurer not included in our list may offer you the best deal. Comparing quotes from several providers gives you the best chance to secure the right policy at an affordable price.  

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Conclusion

Long-term disability insurance is like a safety net that keeps some money coming in if you’re unable to work. Of all the long-term disability insurance options, an individual policy offers the most comprehensive and flexible coverage. However, finding the right policy may require some research.

This is where Dundas Life can help. We can do the hard work for you, comparing quotes from multiple providers and handling all the paperwork, so you can effortlessly secure affordable, customized long-term disability insurance coverage. 

FAQs

What is long-term disability insurance income protection? 

Long-term disability insurance protects you from loss of income if you’re unable to work for a prolonged period of time. 

Who conditions qualify for long-term disability?

A wide range of physical or mental illnesses or serious injuries qualify for long-term disability benefits. The most common qualifying diagnosis for disability claims are mental illnesses, musculoskeletal conditions, cancer, and accidents. It’s important that you check with the insurer to find out what medical conditions are covered by your plan. 

Can I purchase long-term disability insurance if I am self-employed?

Yes, you can buy long-term disability insurance if you are self-employed or a small business owner.   

What is the difference between life insurance and disability insurance?

Life insurance pays a one-time benefit in the event of your death. Disability insurance, in contrast, pays a fixed amount at regular intervals if you cannot work due to sickness or injury.