Skip to main content

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

Your web browser is out-of-date. For the best experience, please update to a modern browser like Chrome, Edge, Safari or Mozilla Firefox.

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

What is disability insurance and how does it work?

Key takeaways

  • Disability insurance helps protect 1 of your most important assets – your income.
  • It can cover an injury or illness that keeps you from working.
  • There are 2 types of disability insurance, short term and long term.

What is disability insurance?

You might say your home, or your car is your most valuable asset. But, have you considered that it’s your ability to earn a living? Over your lifetime, that’s worth far more than your home or car.

Disability insurance works when you can’t. If an illness or injury keeps you from working, disability insurance can give you a tax-free monthly benefit to help you pay your expenses by replacing some of your earnings.

You can customize disability insurance coverage with additional benefits at an extra cost. An example is a return-of-premium1 rider. With this feature, you may get back up to 50% of yearly premiums you’ve paid if you cancel your policy or don’t use the policy within the term length you selected. A cost of living benefit helps reduce the impact of inflation by providing yearly adjustments to the monthly disability benefit during disability. Other additional benefits are available. An advisor can help you select what works best for you.

What disability insurance covers

Disability insurance may cover you if an illness or injury keeps you from working.

While a disability can often be visible to the naked eye, not all disabilities are so easily recognized. Chronic pain or a mental health issue can also qualify as a disability. 

What conditions could qualify as a disability?

Some examples include :

  • Someone who spends months recuperating from a car accident.
  • A carpenter who breaks an arm while skiing and can’t work for 8 weeks.
  • An overworked physician who is told to take it easy after a heart attack.
  • Someone taking chemotherapy whose energy is sapped
  • An accountant whose ability to reason with numbers
  • Someone who has been diagnosed with a major depressive disorder following a traumatic event

How does long-term disability insurance work?

If you become disabled, you file a claim. After your claim is approved, there is a waiting period. The waiting period is the number of days from the date you’re disabled until the benefit start date. This waiting period, chosen at the time you apply, can be anywhere from 30 days to a year. After this period is fulfilled, your monthly benefit would begin.

The monthly benefit replaces a percentage of your paycheque when an illness or accident stops you from working. Your payments stop when your benefit period ends, or you return to work. Your payments depend on how much coverage you choose to purchase and is approved by us at the time you apply. You will work closely with your advisor to help determine this amount.

Types of disability insurance

There are two types – short-term and long-term disability insurance. They work best together because there’s often a waiting period before your benefits start being paid.

Short term

Short-term disability insurance (STD) is usually accessed through a plan provided by your employer.

How long does it last?

It often provides coverage for up to 6 months if you have an illness or are injured. The waiting period for short term disability is typically shorter than long-term disability.

Long term

While long-term disability insurance (LTD) can be offered by an employer, the coverage may not be enough. It’s important to review that coverage closely with your employer’s HR representative to ensure you have enough. Individual disability insurance ensures you’re fully covered if you become disabled for a longer period of time.

How long does it last?

Long-term disability policies also have a typical benefit period. Canada Life offers 24, 60, and 120 months and to age 65.

Government benefits

Some individuals think they don’t need individual disability insurance coverage because they’re protected by government disability programs like Canada/Quebec Pension Plan (CPP/QPP)Opens a new website in a new window, Workers’ Compensation and employment insurance. Coverage provided by these programs may not be comprehensive enough for your needs.

Benefits of having disability insurance

Why is disability insurance important?

  • It’s more common than you think. Up to 40% of Canadians become disabled for 90 days or longer before age 65.
  • It can replace most of your paycheque. You could potentially receive up to 80 to 90% of your take home pay.

It can help you meet your financial obligations so you may be able to avoid dipping into your retirement savings.

How much does disability insurance cost?

Premiums often range from 1 to 9% of your salary, but each case is different. Factors that can affect the cost include:

  • Coverage amount – The more you’d like to receive, the more it will cost.
  • Benefit period ­– The longer you want to receive payment, the more it will cost.
  • Waiting period – If you’re willing to wait longer to receive payments, the less it will cost.
  • Your age – It may cost less when you’re younger.
  • Your health – Costs will be lower the healthier you are.
  • Your occupation – If you have a dangerous job, your costs can be higher.

How to apply for disability insurance

If you need to make a claim for disability insurance, you should do so through the insurance company that’s providing your coverage. Usually you’ll need to complete a digital form on the company’s website or phone their customer service area. In addition, you must have your doctor complete a Physician’s Statement.

What's next?

Now that you understand more about disability insurance and how it works, why not meet with an advisor, or if your workplace benefits are with Canada Life, contact a health and wealth consultant to:

  • Find out much disability insurance coverage you currently have.
  • Determine how much disability insurance coverage you need.

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.

  • 1 The Canada Revenue Agency (CRA) and Revenue Quebec have not provided a formal ruling regarding the tax treatment of return-of-premium benefits that are included in a disability policy. The tax treatment of an optional return-of-premium benefit is, therefore, subject to interpretation.

Related articles