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What are the Long-Term Disability Insurance Options in Canada (2024)
Everyone is at some risk of disability. Disability insurance can provide financial security in the event you become disabled, are unable to work, and face a loss of income. Long term disability covers a portion of your income in the event you are unable to work. In Canada, there are three long term disability insurance options: through Federal/Provincial benefits, through a provincial Workers Safety Insurance Board (WSIB), or through your work group benefits and private disability insurance.
- What is long-term disability insurance?
- Important disability definitions
- What are the different types of disability insurance?
- Who is long-term disability insurance for?
- Life insurance versus disability insurance
- What are the benefits of disability insurance?
- How does federal disability insurance work in Canada?
- What are workers' compensation benefits and how do they work in Canada?
- How do group benefits work for disability insurance coverage in Canada?
- How does private Canadian disability insurance work?
- How do I find out more about disability insurance?
- Frequently asked questions
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?
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 four 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
- Private disability insurance
Important disability definitions
- Disability: A person with a disability is someone who has a long-term physical, mental, sensory, psychiatric, or learning impairment and feels that this impairment makes it harder for them to find or keep a job
- Disability insurance: Coverage that provides income replacement if you are unable to work due to illness or injury
- Short-term disability insurance: Provides income replacement for a brief period, typically up to 6 months, for temporary disabilities
- Long-term disability insurance: Offers income replacement for extended periods, often until retirement, for long-term or permanent disabilities
- Own-occupation coverage: Pays benefits if you cannot perform the specific duties of your own job, regardless of whether you can work in another occupation
- Any-occupation coverage: Pays benefits only if you cannot perform any job for which you are reasonably qualified, considering your skills and experience
- Regular occupation coverage: Provides benefits if you cannot perform the duties of your regular or usual job, more comprehensive than any-occupation but less so than own-occupation
- Elimination period: The waiting period you must endure before benefits begin, typically ranging from 30 to 180 days
- Benefit period: The duration during which benefits are paid, which can range from a few months to until retirement age
- Partial or Residual disability: Covers partial disabilities that prevent you from performing some job duties but not all, offering a partial benefit based on lost income
Types of disability insurance
Here is an overview of the various disability insurance options in Canada:
| Type of disability insurance | Description | Key features |
| Short-term disability insurance | Provides benefits for a short period, typically 3-6 months | – Covers temporary disabilities
– Short waiting period – Pays a percentage of salary |
| Long-term disability insurance | Offers benefits for extended periods, potentially until retirement | – Covers long-term or permanent disabilities
– Longer waiting period (usually 90 days or more) – Can replace up to 60-70% of income |
| Individual disability insurance | Purchased individually, providing personal income protection | – Customizable to individual needs
– Premiums based on age, health, occupation – Higher cost but tailored coverage |
| Group disability insurance | Offered by employers as part of a benefits package | – Lower premiums due to group rates
– Limited customization – Coverage may end when employment ends |
| Own-occupation disability insurance | Pays benefits if you cannot perform your specific job | – Higher premiums
– More comprehensive coverage – Ideal for specialized professionals |
| Any-occupation disability insurance | Pays benefits only if you cannot work in any occupation for which you are reasonably qualified | – Lower premiums
– Stricter qualification criteria – Less comprehensive coverage |
| Regular occupation disability insurance | Pays benefits if you cannot perform the duties of your regular or usual job | – Lower premiums than own-occupation – Broader coverage than any-occupation
– More affordable option for general professions |
| Workers’ compensation benefits | Employer-provided coverage for work-related injuries or illnesses | – Covers medical expenses and lost wages
– Only applicable to job-related incidents – Regulated by provincial and territorial governments |
Who is long-term disability insurance for?
Long-term disability income insurance (LTD) benefits those who rely on their income to support themselves or their family. The following groups must consider long-term disability insurance:
- Employees with jobs that provide their primary source of income
- Self-employed individuals (business owners or freelancers) without employer-provided benefits
- Primary breadwinners whose families depend on their income for daily living expenses
- People with mortgages, loans, or other significant debts
- High-income professionals whose lifestyle and financial responsibilities require substantial income protection
- Individuals lacking savings who would face financial hardship if they were unable to work due to a disability
Life insurance versus disability insurance
Here’s a comparison of life insurance versus disability insurance:
| Aspect | Life insurance | Disability insurance |
| Purpose | Provides financial support to beneficiaries upon the insured’s death | Provides income replacement if the insured becomes unable to work due to a disability |
| Coverage | Lump-sum death benefit paid to beneficiaries | Monthly benefit payments to the insured during the disability period |
| Beneficiaries | Typically family members or dependents | The insured individual |
| Trigger event | Death of the insured | Disability of the insured (illness or injury) |
| Use of benefit | Funeral costs, living expenses, debt repayment, education costs, estate taxes | Living expenses, medical bills, rehabilitation costs, mortgage/rent payments |
| Policy types | Term life, whole life, universal life | Short-term disability, long-term disability, own-occupation, any-occupation |
| Duration of benefits | Until the policy term ends or the insured’s death | Until the insured can return to work or the benefit period ends |
| Premiums | Based on age, health, coverage amount, policy type | Based on age, health, occupation, coverage amount, policy type |
Benefits of long-term disability insurance
Disability insurance benefits anyone in their prime working age in the following ways:
- Income protection: Disability insurance ensures a steady income if you’re unable to work due to illness or injury. Many people think that they won’t suffer from a disability, but statistics show that disabilities are more common than you might expect
- Peace of mind: Knowing you have financial support in case of disability relieves stress. Some might say they have savings, but savings can deplete quickly without a regular income
- Covers expenses: It helps cover daily living expenses, medical bills, and rehabilitation costs. You might think you can rely on your spouse’s income, but a single income may not be sufficient, especially with additional medical expenses
- Maintains standard of living: Helps you maintain your lifestyle and support your family financially. Your employer may provide workplace benefits, but employer-provided plans may not offer adequate protection or may end with your job
- Customizable coverage: Policies can be tailored to your specific needs, ensuring optimal coverage. Some might find disability insurance expensive, but the cost of not having coverage can be far greater in the long run
Call 1-888-601-9980 to speak to our licensed advisors right away, or book some time with them below.
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 short-term disability 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)
- be under the age of 65,
- have had an injury that is 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).
The average Canadian receives less than $1,000 per month in CPP disability benefits, and the maximum monthly payout cannot exceed $1,300. This amount is likely not enough to cover one’s bills and is taxable in nature.
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 jurisdiction.
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.
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 cover accidents that happen on the job.
If you are injured outside of work, this insurance won’t cover you. Its 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.
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.
Long-term benefits have a waiting period, that typically begins after sick leave and/or short-term disability benefits offered by your employer end. 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.
Frequently asked questions
Which are the top long-term disability insurance providers in Canada?
In Canada, leading insurers like Manulife, Sun Life, Desjardins, Empire Life, RBC Insurance, and Canada Life offer long-term disability insurance.
What factors affect the cost of long-term disability insurance in Canada?
The cost of long-term disability insurance depends on factors such as age, health, occupation, coverage amount, and the length of the benefit period.
What is the elimination period in long-term disability insurance?
The elimination period is the waiting period before benefits begin, typically ranging from 90 days to 180 days, during which you must be disabled before you receive payments.
Can I purchase long-term disability insurance if I am self-employed?
Yes, self-employed individuals can purchase long-term disability insurance to protect their income in case of a serious illness or injury.
- Employment Insurance and Canada Pension Plan Disability Benefits are federal programs that replace a portion of your income should you be injured or sick and unable to work
- Worker's compensation is coverage which exists incase you are injured on the job, but offers no coverage outside of the workplace.
- Group benefits programs offer some disability coverage, but the benefits are usually limited.
- Private disability insurance gives you more control over your income replacement should something affect your ability to earn an income
