Insights & advice
Business loan protection disability insurance
Nov. 2022 – 15 min read
Business loan protection disability insurance can help your business keep up with monthly loan payments if you have a serious illness or injury that prevents you from running your business
Business owners should have separate personal disability insurance
Business owners and key employees can be covered by business loan protection disability insurance
What’s in this article?
- What is business loan protection disability insurance?
- Why business owners need business loan protection disability insurance
- What business loan protection disability insurance provides
- What qualifies as a disability for coverage
- Businesses eligible for coverage
- Loans eligible for coverage
- Who is eligible for coverage
What is business loan protection disability insurance?
If you have a serious illness or injury that prevents you from running your business, this insurance can help you keep up with monthly loan payments. This lets you concentrate on getting healthy again.
Why business owners need business loan protection disability insurance
Many business owners have personal disability insurance to help replace their income and cover expenses if an illness or injury keeps them from working. This insurance can help protect their family and their retirement savings.
Separate business loan protection disability insurance for business owners or key employees can help:
- Pay down loans
- Ensure buy-sell agreement funding remains in effect
- Keep the business running smoothly
What business loan protection disability insurance provides
Canada Life will pay the lender a monthly benefit equal to:
- 1% of your comprehensive coverage to a maximum of $7,500.
- Your monthly premium and all premiums related to insured people in the same business following the 60-day waiting period, up to a maximum of 24 months per disability, per person.
- The overall maximum of disability benefit payments is 48 months per lifetime, per person.
If you become disabled, you’ll have to wait 60 days from your date of disability before benefits are payable. This means you’re responsible for any payments due during this 60-day period.
What qualifies as a disability for coverage
A disability is an injury, disease, or sickness that prevents an insured person from performing the regular duties of:
- Their occupation just before they became disabled
- The insured person’s principal occupation, if they’re a seasonal employee and they become disabled between seasons
- The insured person’s occupation prior to retirement
To qualify for disability benefits and to continue to receive these benefits, the insured person must:
- Be under the continuous care of and following the treatment prescribed by a doctor or, in the case of mental illness or nervous disorder, including anxiety, depression and behavioural disorders, under the continuous care of and following the treatment prescribed by a doctor who is a psychiatrist
- Not be engaged in any activity for wages or expectation of profit
- Provide proof of the insured person’s disability claim satisfactory to the insurer, and continue to provide proof of the insured person’s disability claim whenever the insurer may request it, at the business’ expense.
The insurer may request, at its own expense, a medical examination by a physician appointed by them or an examination at a rehabilitation facility.
No disability benefit will be paid if a disability is a result of:
- Normal pregnancy
- Elective cosmetic or experimental surgery or treatment
- Self-inflicted injury, suicide, or attempted suicide during the first 2 years from the date your insurance coverage started
- Declared or undeclared war unless you are on active military duty as a member of the Canadian Forces or Canadian Forces Reserve
- Nuclear, chemical, or biological contamination due to any act of terrorism
- Use of any drugs, poisonous substances, intoxicants or narcotics, unless taken following your doctor’s instructions
- Operation of any motorized vehicle or watercraft while you are impaired by drugs or alcohol
- Participation or attempted participation in a criminal offence
Businesses eligible for coverage
To qualify for business loan protection disability insurance, a business must:
- Be a resident and operate in Canada
- Be indebted to a lender under a fixed or variable rate term loan or demand loan, or a revolving credit facility
- Be a sole proprietorship, partnership, corporation, holding company or other entity operating a business
- If not a farm, fishery or ranch, be a business that is, or if it were incorporated, would be, a small business corporation within the meaning of subsection 248(1) of the Income Tax Act
Ineligible business entities include:
- Non-profit organizations (such as churches, governments, service clubs, and charities)
- Students under the Canada Student Loan program
Loans eligible for coverage
All commercial, small business or farm loans, lines of credit, mortgage loans, credit cards, personal demand loans for business purposes, or other related business loan credit agreements qualify for coverage.
Ineligible loans include:
- Letters of credit
- Letters of guarantee
- Personal credit cards or lines of credit
- Personal loans (unless used for business or investment purposes) or mortgages
- Banker’s acceptances
- Tender loans
- Any loans denominated in non-Canadian funds
Who is eligible for coverage?
A person is eligible for coverage if they’re related to an eligible business entity as:
- A sole proprietor or partner of an eligible business entity
- An individual who has guaranteed the repayment of an eligible loan
- A shareholder who owns at least 10% of the voting rights of a corporation that is an eligible business entity
- A key employee whose contributions are essential to an eligible business entity and without whom the eligible business entity would have difficulty operating
Up to 10 people may be insured with respect to any single eligible business entity.
At the date of application, the person must be between 18 and 65 years old and a resident of Canada.
In addition, the person must also be:
- Actively working at least 20 hours per week. If the person is a key employee, he or she must be actively working at least 20 hours per week for the business entity named on the application. If the person is a seasonal worker, he or she must be capable of performing their regular duties for at least 20 hours per week.
- Not receiving disability benefits from any source.
Now that you understand more about business loan protection disability insurance, and why it’s important to the financial security of your business, you may want to contact your advisor to:
Determine your business and personal insurance needs
Discover how business loan protection disability insurance fits into your financial plan
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.