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The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

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Freedom 55 Financial is a division of The Canada Life Assurance Company and the information you requested can be found here.

How much disability insurance do I need?

Key takeaways

  • The impact of a loss of income due to a disability is different from person to person.
  • Disability insurance could help supplement your lost income if you can’t work or lose your job.
  • Having a disability that prevents you from working is quite common. 

You work hard to protect what matters most to you. Like the car that takes you to work or the home that helps keep your family safe. But what about income protection? It’s 1 of your most important assets.

You should always make sure that you have enough money to cover your existing monthly living expenses if you lose your income due to a disability. Some of the most important things in life – our families, and our lifestyles – depend on a steady source of money.  

What is the cost of lost income?

Many Canadians put assets like their vehicles and homes first when it comes to getting insurance. But the cost of these things being affected by fire, theft, or flood might not seem as bad compared to the financial challenges that come with losing your income due to a disability. Over the long run, that could add up to a lot of lost wages.

Not accounting for inflation, if you earn about $50,000 annually you would make approximately $1.5 million over the course of a 30-year career – a significant amount of money for a family. That number doesn’t even account for increases in salary, which means that the total could be even higher for some.

A disability can also come with additional costs, such as making your home more accessible, paying for in-home care, or taking more prescription medications. Let’s look at some hypothetical examples of people who lose 20%, 30%, or 40% of their household annual income due to a disability, and how this could affect their daily living situations:

Example 1: 20% Reduction in Yearly Income

  • Original Yearly Income: $100,000
  • 20% Reduction: $20,000
  • New Yearly Income: $80,000
  • With a 20% reduction in income, a person making $100,000 annually might need to adjust their lifestyle by cutting back on non-essential expenses. This could mean dining out less frequently, limiting leisure activities, and finding ways to save on everyday expenses without a significant impact on their basic needs and quality of life. 

Example 2: 30% Reduction in Yearly Income

  • Original Yearly Income: $120,000
  • 30% Reduction: $36,000
  • New Yearly Income: $84,000
  • A 30% reduction in income for someone earning $120,000 annually could require more substantial adjustments. They might need to reevaluate housing options, reduce spending on entertainment and travel, and find ways to save on utilities and groceries. Non-essential subscriptions or memberships might need to be canceled or downsized. 

Example 3: 40% Reduction in Yearly Income

  • Original Yearly Income: $150,000
  • 40% Reduction: $60,000
  • New Yearly Income: $90,000
  • A 40% reduction in income for someone earning $150,000 annually would necessitate significant lifestyle changes. This might include downsizing to more affordable housing, relying on public transit or selling a car, and accessing community resources for assistance with food and other essentials. They may also need to negotiate with creditors and explore all available government assistance programs.

In all cases, careful budgeting, prioritizing essential expenses, and seeking additional support (such as disability insurance or community assistance programs) would be crucial. Additionally, consulting with an advisor could help in making strategic decisions to adapt to the reduced income and maintain a reasonable quality of life.

How likely are you to experience a disability?

Although people don’t like to think about it, having a disability is more common than you might think. In fact, about 40% of Canadians become disabled for 90 days or longer before the age of 65. Government programs like the Canada Pension Plan (CPP) and Workers’ Compensation can help, but you’ll need to meet certain conditions to qualify.

CPP benefits only cover disabilities that are severe and prolonged enough to prevent you from working any kind of job, not just the job you had. Meanwhile, Workers' Compensation only covers disabilities caused by workplace incidents. 

How much can you receive through disability insurance?

Disability insurance can help you and your family pay for necessary expenses like your mortgage, car payments, utilities , and groceries. If you earn $50,000 per year you may be eligible to receive a monthly benefit of $2,975, giving you a take-home pay of nearly $36,000. If you earn more, like $120,000, you could qualify for a monthly benefit of just under $6,000, giving you a take-home pay of $71,100. 

It should also be noted that the amount you receive may only be a portion of your existing annual income. Therefore, it’s beneficial to have a budget in place to make sure you can cover your living expenses.

What if you already have disability insurance through work?

Many Canadians have disability coverage from their employers, but it might not be enough to cover your lost income. It might be a good time to look at how much coverage you have through your employer.

What's next?

  • Having a budget is essential to make sure your living expenses are covered.
  • Understand how much coverage you have through your employer just in case. 
  • Contact an advisor who can help you get set up with disability insurance.

The above example is for illustrative purposes only.  Situations will vary according to specific circumstances.

This material is for information purposes only and shouldn’t be construed as providing legal or tax advice. Every effort has been made to ensure its accuracy, but errors and omissions are possible. All comments related to taxation are general in nature and are based on current Canadian tax legislation and interpretations for Canadian residents, which are subject to change. For individual circumstances, consult with your tax, legal or accounting professionals. This information is provided by The Canada Life Assurance Company and is current as of date of publication.  

See how disability insurance for your business can help keep things running smoothly if an illness or injury keeps you or an employee from working.