Why should businesses purchase disability insurance?
If an illness or accident stopped you or your employees from working, it could significantly impact your business and your lifestyle.
Purchasing disability insurance for your business can help keep operations running smoothly and cover expenses if an illness or injury keeps you or a key employee from working. It can replace your income, cover overhead expenses, and help you attract qualified candidates with a more competitive compensation package. You may also be able to deduct your premiums, depending on the type of plan and how it is set up. Most importantly, you’ve insured the people instrumental to the continued success of your business.
How does disability insurance work?
Disability insurance can be customized to meet your needs with optional benefits. If you become disabled, the first step is to file a claim. If your claim is approved, you will begin to receive monthly payments, once the waiting period ends. The waiting period, chosen at the time you apply, is the number of days from the date you’re disabled until your monthly payments start. Benefits continue, while you satisfy the terms of the policy, until the end of the benefit period.
Types of business disability insurance
Overhead expense plan
This policy covers eligible business overhead expenses during total disability. This option is best for owners with monthly business expenses and could last for 1 or 2 years. It helps you retain valued staff, pay ongoing expenses and avoids disruption to your business.
Buy/sell agreement for private businesses
This plan is ideal for owners of a privately held business to protect you and your business partner(s) if either of you become disabled. There are two benefit payment options, a single, lump sum payment and/or monthly payments for 60 months. Benefits under this plan include funds to purchase the shares or ownership interest of a totally disabled shareholder or partner. It also reassures suppliers, creditors, shareholders or partners. Business stakeholders can rest assured that should a key partner become disabled, their share of the business can be bought out and the business can continue.
Either a Lifestyle Protection plan or an Independence plan can be set up under the structure of a Wage loss replacement plan (WLRP). This would allow the business to write off the premium payments as a tax-deductible expense and offer all employees in the same category individual disability insurance. The premiums would be paid by the business. Employees would not require an increase in salary to cover premium payments which means less income tax needs to be paid by the employee. Only employees may participate in a WLRP. A shareholder who’s an employee may participate in a WLRP if they are doing so in their capacity as an employee, not in their capacity as a shareholder.
What does disability insurance cover?
More than 85% of disability insurance claims fall under cancer, nervous disorders (including depression and anxiety)1 or musculoskeletal injuries. Chronic pain or other mental health issues can also be covered under disability insurance.
Talk to an advisor today to learn more about disability insurance and how it can help protect you, your employees and your business.
The information provided above is for general information only. It is not to be relied upon as providing legal or tax advice. You are encouraged to consult with your professional tax and/or legal advisor about your particular circumstances.
1Source: Canada Life disability insurance – based on all new claims paid 2018. Note that as the Independence Plan is a basic disability insurance plan, disability contributed to or caused by depression and anxiety are not under this plan.