Disability insurance in Canada: How to pick the best policy
Good to know
One in three Canadians will suffer a serious injury or illness that prevents them from working for at least three months during their working years.
What would happen if that were you? Could you keep paying your bills? Disability insurance offers peace of mind and a regular income if you get ill or suffer a life-changing accident.
This guide explains how Canadian disability insurance works. Short-term vs long-term, what it covers, why you should consider purchasing a disability policy and who offers the best disability insurance plans.
What is disability insurance?
In Canada, disability insurance is a type of insurance that protects your income if an illness or injury keeps you from working. In essence, it ensures your earning potential.
Disability insurance is not as straightforward as it may appear at first glance because it refers to multiple things. Both short-term disability and long-term disability insurance are available. Additionally, disability insurance exists both as a government benefit and as a separate private insurance policy.
Employers frequently offer short-term disability insurance as an employee benefit. It is limited to just a few months of coverage. Long-term disability insurance is available to purchase individually. It protects your earning potential until retirement age.
For both short-term and long-term insurance, there is some public disability assistance in Canada. These are the Employment Insurance (EI) and the Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) respectively. These important programs help many people, but they are not always enough.
For example, the public CPP/QPP assistance pays an average of $619.75 per month. That is not enough to live on.
You can protect yourself and your dependents by supplementing public programs with additional long-term disability insurance. Should you need disability in the future, a good insurance plan is a valuable lifeline. The most generous plans can cover you for up to 85% of your previous pre-tax monthly income.
Interested in a disability insurance quote? You can compare the best insurers and plans at the top of this page.
How does disability insurance work?
Disability insurance works like other types of insurance. Risk is spread over a large number of policyholders. Some unlucky people will have a need, but most will not. Everyone pays a small amount in order to be protected. The main benefits of disability insurance are peace of mind and the financial safety net it offers. A serious injury or critical illness can end a career, but with disability insurance, you can be assured that your financial future is secure no matter what arrives.
Here is a breakdown of how short-term and long-term disability insurance work together.
When a worker first stops working, short-term disability insurance will take over. This is just a lifeline to temporarily hold the worker over financially until they can return to work. It lasts up to 6 months. Many employers offer an employee disability insurance benefit. You can also purchase short-term coverage individually if you are a self-employed person or someone who does not otherwise have short-term disability insurance available through an employer.
After short-term disability ends, someone who is still unable to work may be eligible for long-term disability insurance. It usually only begins after a 3 to a 6-month waiting period. It potentially covers years of payments until the worker can return to work.
In some cases, long-term disability insurance can even provide a worker with a disability a monthly income until retirement!
Good to know
Not all long-term disability insurance policies are equal. Always check the fine print before buying any policy.
What does short-term disability insurance cover?
The Canadian government offers Employment Insurance (EI) disability benefits to workers suffering from medical issues that prevent them from working. It lasts up to 15 weeks and pays 55% of previous earnings, up to a maximum of $638 per week.
Employment taxes fund this program. Eligible recipients include the recently unemployed, those taking parental leave and those unable to work due to medical reasons.
Workers seeking EI due to disability are required to obtain a medical certificate to explain their illness, injury or condition.
Private plans, offered through an employer, are designed specifically for workers missing time to illness or injury.
Check with your employer to learn if you are covered by Canada’s Employment Insurance (EI) benefits or a private short-term disability insurance plan.
What does long-term disability insurance cover?
Long-term disability insurance, also known as LTD, covers between 40 and 85% of your previous monthly pre-tax income. High earners should note that payments may have a cap of $5,000 per month. As always, coverage amounts depend on the insurance plan.
In the event of a catastrophic need, disability insurance makes sure that you and your family will be okay. You will still be able to cover major bills, medical care and day-to-day living expenses.
Wondering if long-term disability insurance is worth it? The public CPP disability benefits plan offers an average of $619.75 per month and a maximum monthly benefit of $1,457.45. Would that be enough to cover your expenses?
How much CPP pays:
|Type of benefit||Average monthly amount||Maximum monthly payment amount (2022)|
|CPP disability benefit||$1,064.80||$1,457.45|
|CPP post-retirement disability benefit||$524.64||$524.64|
|CPP children’s benefit||$264.53||$264.53|
Note: CPP disability benefits are updated every January and may go up to match an increase in the cost of living.
What conditions qualify for disability in Canada?
Insurance companies all have different definitions of disability. Qualifying conditions may change from insurer to insurer, plan to plan and case to case.
These conditions are defined as conditions that would prevent a worker from being able to perform their job.
Among others, qualifying conditions include:
- Amyotrophic Lateral Sclerosis (ALS)
- An accident occurring on the job
- Cardiovascular disease and stroke
- Chronic fatigue syndrome
- Early-onset Alzheimer's Disease
- Idiopathic Pulmonary Fibrosis (IPF)
- Injuries affecting the body, including the back and the brain
- Huntington's Chorea Disease
- Gastrointestinal issues such as Crohn’s disease, irritable bowel syndrome and colitis
- Loss of hearing
- Loss of vision
- Mental health issues, such as anxiety, depression and bipolar disease
- Multiple sclerosis
- Parkinson's Disease
- Post-traumatic stress disorder
- Post-inflammatory Pulmonary Fibrosis/Interstitial (Non-idiopathic) Pulmonary Fibrosis
- Progressive Polyneuropathy
Many of the above conditions also qualify for critical illness insurance policies, which provide a one-time payout instead of an ongoing income replacement. Learn more about the two types of insurance compare to our critical illness vs disability insurance guide.
What is the best disability insurance in Canada?
Which disability insurance provider and policy is best for you depends on your needs, age, health and ability to pay.
Here are some commonly searched life insurance providers in Canada:
Good to know
*BMO, CIBC and TD do not offer disability insurance, but rather mortgage disability insurance and disability protection of lines of credit.
How much does disability insurance cost?
Disability insurance typically costs between 1-3% of your monthly salary, though it can range as high as 9%.
Your premiums depend on coverage amount and length. The waiting period for the insurance to kick in after an illness or injury, your age, current health and occupation are also taken into account.
There are two types of long-term disability insurance policies available. You may purchase either any occupation or regular or own occupation disability insurance. The former is less expensive, but you can lose benefits if you are able to do a different job. The latter is more expensive, but it protects your earning potential if you can no longer do the job you do today.
For example, let’s imagine Tyrone, a 35-year-old construction worker living in Mississauga. One day at work, he injures his back after falling off of a ladder. His injury means that he is no longer able to lift heavy loads or climb up scaffolding. This affects his ability to continue working in construction.
If Tyrone only has an occupation policy and he is able to work in a different capacity, such as an office job, the insurance company may deny a payout. On the other hand, a regular or own occupation policy would pay out because he’s no longer able to work in his regular profession of construction.
Any occupation disability policies make particular sense for high-earners with a very specialized skill set.
As everyone has different needs, check with insurers and compare disability insurance quotes at the top of this page.
How much disability insurance do I need?
There is no hard rule on how to calculate how much disability insurance you need. It depends on your family situation and your risk profile. You will need to consider your monthly spending and anticipated needs. Note that many plans have a waiting period before they kick in.
Here are some good questions to ask yourself when considering disability insurance:
- Do you have existing short-term disability benefits through an employer?
- Do you have dependents? You may have children, a spouse, parents or siblings you support financially.
- Are you a single parent or the sole breadwinner in your family?
- How much do you still owe on your mortgage?
- Do you have a car loan, credit card or other debts to service?
- How long could you and your family stay in your house without your salary?
- How much money do you have saved?
!If you have any occupation disability insurance, you may lose benefits if you are well enough to do a different job. For example, mobility issues may mean you can no longer work a physical factory job but may be apt to perform an office or service job from a seated position.
How do I get short-term disability insurance?
Short-term disability insurance is often offered through one’s employer. Self-employed people can speak with an insurance broker about a plan or purchase a plan online.
In Canada's public system, the government offers Employment Insurance (EI) benefits to workers with medical issues that prevent them from working. Workers must obtain a medical certificate explaining their qualifying illness, injury or condition. It lasts up to 15 weeks while paying 55% of previous earnings (up to a maximum of $638 per week).
How can I get long-term disability insurance?
Quickly compare disability insurance rates and options with our comparison tool at the top of this page. Long-term disability insurance can be purchased online, directly through an insurer or insurance broker.
It is a smart idea to purchase long-term disability insurance. It ensures your ability to cover major bills and day-to-day living expenses even if you cannot work.
Long-term disability is affordable protection. Here is what a leading provider quotes for different profiles:
|Age of insuree||Monthly salary insured||Monthly premium|
Are disability insurance premiums tax-deductible in Canada?
Unfortunately, disability insurance premiums are not typically tax-deductible in Canada.
We recommend speaking with a tax professional if you feel that you may qualify for a tax deduction. Taxes are a complex topic. The specifics can change dramatically between individuals.
While disability insurance premiums are not tax-deductible, the disability tax credit reduces the income tax of people with a disability.
Note, should you ever need them, the payments provided by disability insurance are tax-free.
Can I purchase disability insurance if I am self-employed in Canada?
Yes, the self-employed can purchase both short-term and long-term disability insurance.
Disability insurance is crucial for freelancers and entrepreneurs. If you are unable to work, you are unable to earn. You may also have recurring business expenses that you need to keep paying even while you are away.
For short-term disability needs, self-employed people have the same right to apply for Employment Insurance (EI) as any other worker. Those that need the additional protection of a short-term plan can purchase a plan online or speak with an insurance broker.
For long-term disability insurance, the self-employed can purchase plans just like the employed.
Is disability insurance taxable?
Disability insurance benefits may or may not be taxable. It depends on who paid for the disability insurance policy.
As a general rule, if the premiums are paid for after-tax the benefits are not taxable. This is a nice perk because it can give you an income similar to what you made before receiving disability insurance benefits.
On the other hand, if premiums were paid before taxes, the benefits themselves are taxable.
Here is a chart to help make it easier to understand:
|Type of disability insurance||Is it taxable?|
|Individual long-term disability insurance|
|Self-employed long-term disability insurance|
|Employer disability insurance|
(if the employer pays 100% of premiums)
|Employer disability insurance |
(if the employer deducts the premiums from your paycheque)
|Canada Pension Plan disability benefits|
|Employment Insurance sickness benefits|
What is the Disability Tax Credit?
The Disability Tax Credit allows people with physical or mental impairments to reduce their income tax.
Applying for the tax credit is important as it is a prerequisite for accessing multiple federal, provincial and territorial disability benefits. Eligible people need to be deemed to have a severe and prolonged impairment by a medical practitioner. Apply for the Disability Tax Credit via Canada.ca
How does disability work in my province?
Public disability benefits are not uniform from one province to another. Amounts, eligibility and available programs change. Possible benefits include income assistance, access to healthcare providers and housing assistance.
HelloSafe has put together individual guides for:
- Disability insurance: Alberta
- Disability insurance: British Columbia
- Disability insurance: Ontario
- Disability insurance: Quebec
If you believe that you may be eligible for disability benefits from your province or territory you should inquire with the relevant provincial authorities. Below we’ve compiled a list of resources by province. The links open up on the corresponding provincial website:
- Alberta Disability Benefits
- British Columbia Disability Benefits
- Manitoba Disability Benefits
- New Brunswick Disability Benefits
- Newfoundland and Labrador Disability Benefits
- Northwest Territories Disability Benefits
- Nova Scotia Disability Benefits
- Nunavut Disability Benefits
- Ontario Disability Benefits
- Prince Edward Island
- Quebec Disability Benefits
- Saskatchewan Disability Benefits
- Yukon Disability Benefits
See our articles on disability insurance:
- Sun Life disability insurance reviewed: Is it right for you?
- RBC disability insurance reviewed: Is it right for you?
- Manulife disability insurance reviewed: Is it right for you?
- iA disability insurance reviewed: Is it right for you?
- Desjardins disability insurance reviewed: Is it right for you?
- Canada Life disability insurance reviewed: Is it right for you?
- Blue Cross disability insurance reviewed: Is it right for you?
- Guide to disability insurance in Quebec
- Guide to disability insurance in British Columbia
- Guide to disability insurance in Alberta
- Critical Illness insurance vs disability insurance: the key differences
- A guide to Employment Insurance
- A guide to ODSP and disability insurance in Ontario
- A guide to short-term disability
- A guide to long-term disability insurance
- Get a quote disability insurance