We’re all familiar with the famous quote from Benjamin Franklin to the effect that only two things in life are certain: death and taxes. All irony aside, one might conclude that the reason most people are readily inclined to purchase an individual life insurance policy is that their death is a future certainty.
When it comes to illness or disability, the situation is different. As we can see here, a full 90% of premiums are paid through group plans, generally offered by employers. Moreover, only 27% of benefits are used to provide income in the event of a disability: the vast majority are used to supplement public health insurance plans.
In this context, should you contemplate individual insurance that would protect your income if you could no longer work? Here are a few things to think about.
What the numbers say
Statistics provide a clear picture of the risk involved. In Canada, the probability of having a disability lasting more than 90 days before the age of 65 is 50%. After a six-month absence, an employee would only have a 50% probability of returning to work. After one year, this would drop to 20%, and after two years it would be a mere 10%: the longer the disability, the lower the chances of returning to one’s livelihood. As it turns out, the average duration of a disability is currently 2.8 years.
The effect of a long period without an income could be significant in the short term. According to Statistics Canada, about 37% of mortgage defaults are due to a disability. But the impact could be even more substantial in the long term, since the individual’s future saving capacity might also be affected.
Now let’s take a look at the basic coverage that may be provided in this kind of situation.
Main public plans
Public pension plans
An initial source of income could be the Canada Pension Plan or, for residents of Quebec, the Quebec Pension Plan. The disability benefit amount is generally based on the contributions paid by the worker, with the maximum being around $1,500 a month for 2022. Additional benefits might be available if the person has a dependent child or if the benefit is paid after retirement.
Be aware, however, that there is a 120-day waiting period after the disability is diagnosed before benefit payments begin and that the disability must be severe, long-term or of indefinite duration.
A second source could be employment insurance (EI). EI benefits can replace up to 55% of your income, to a maximum of $638 per week. However, the duration of payments is limited to 15 weeks.
Finally, workers’ compensation boards might come into play, as long as the incapacitating disability or illness originated in the workplace. Depending on the province, income replacement benefits may be as much as 90% of earnings, subject to a maximum insurable amount (for example, in Quebec, the maximum insurable earnings ceiling is $88,000). Something else to consider: the current environment is very conducive to working from home. The jurisprudence for assessing the admissibility of claims in this new environment is just beginning to emerge.
A last note: in some provinces – Quebec, for instance – an indemnity might be available in the case of a road accident.
Is it enough?
To assess your own needs, you would have to determine whether these basic sources of coverage would be enough to allow you and your family to maintain your standard of living and your ability to save. If not, an employer-sponsored group plan, if one exists, might be a solution. However, you should obviously read the “fine print”: such policies sometimes have long waiting periods (the length of time before benefits are paid), and are limited to certain types of disability.
This might be the reason for the increase in sales of individual disability insurance policies observed in recent years. In many cases, these policies are used to supplement existing coverage and to provide more flexibility. For more details, don’t hesitate to contact your advisor.
The following sources were used to prepare this article:
Assurance travailleurs autonomes, “Assurance vie et assurance invalidité – statistiques clés.”
Brainy Quotes, “Death And Taxes Quotes.”
CLHIA, “Canadian Life & Health Insurance Facts, 2021 Edition
CNESST, “Income replacement indemnity.”
Government of Canada, “Canada Pension Plan disability benefits”; “EI regular benefits: How much you could receive”; “Disability insurance.”
La Presse, “Chuter à la maison est un accident de travail, tranche le tribunal.”
LSM Insurance, “Disability Insurance in 2021 and Beyond: What Changed During the Pandemic.”
Orlando Ali, “3 Government Disability Plans That May Not Protect You Like You Think.”
Retraite Québec, “Payment of the disability pension under the Québec Pension Plan.”
SAAQ, “Filing a claim for compensation (accident or death benefits).”