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Disability Income Insurance

Disability income insurance is a type of coverage that replaces a portion of your income if you become unable to work due to illness or injury. It provides ongoing monthly payments designed to help you meet financial obligations such as rent, mortgage, utilities, or living expenses while you recover or adjust to a long-term disability.

How It Works

Also called simply disability insurance, this coverage protects you and your family by providing income protection when an unexpected illness or accident leaves you unable to work and earn an income. In Canada, it generally replaces between 60 and 85 percent of your income, up to a maximum amount, for a specified time if you temporarily cannot work or are permanently disabled. Many employers offer disability insurance through group plans, but it is also available through a life and health insurance agent, and it is commonly purchased through group plans, individual plans, and association plans. Short-term coverage typically provides benefits for up to 6 months while you are sick or injured, while long-term disability insurance generally begins when short-term disability, employer sick leave, and EI sickness benefits end.

Example:

Imagine a self-employed graphic designer in Ontario who buys an individual long-term disability income policy through a life and health insurance agent. She pays the premiums herself, so they are not tax-deductible, but if a back injury keeps her from working, the monthly benefit she later receives is not taxable. Her policy uses an "own occupation" definition for the first two years, so it pays even if she could theoretically do a different, lower-paying job, and benefits begin only after the policy's waiting period ends.

What to Watch For:

Insurance companies may define disability differently, and the definition can even vary between different plans from the same company, so check your plan's definition of disability with your insurance agent. An "own occupation" definition pays if you cannot perform your specific job, often during the first two years of a long-term disability claim, while an "any occupation" definition pays only if you cannot perform any job you are qualified for. Taxation also depends on who pays the premiums. For a self-employed person who personally pays the premiums, the CRA's position is that the premiums are not deductible and the benefits received are not included in income. Where an employer pays the premium on an employee-owned policy, the premium must be included in the employee's income as an employee benefit, while for a personally owned policy the premium is a non-deductible personal or living expense.

Related Terms

Dental Insurance

Dental insurance is a type of health coverage that helps pay for the cost of preventive, basic, and major dental services. It is designed to make oral care more affordable and to encourage regular checkups that prevent costly procedures later on. Dental insurance is offered through group employee benefits, individual plans, or conversion plans for people leaving workplace coverage.

Critical Illness Insurance

Critical illness insurance is a type of financial protection that pays a one-time, tax-free lump sum if you are diagnosed with a covered serious illness such as cancer, heart attack, or stroke. Unlike disability insurance, which replaces a portion of your income over time, critical illness insurance gives you a single payout that you can use however you choose - for medical expenses, household bills, recovery time, travel, or lifestyle adjustments.

Long-term Disability insurance

Long-term disability (LTD) insurance provides income replacement if you are unable to work for an extended period due to illness or injury. It ensures financial stability by paying a percentage of your regular income, typically between 60 and 85 percent, after you have been disabled for a specific waiting period known as the elimination period. LTD benefits continue until you recover, reach a set benefit end date, or reach retirement age, depending on the terms of the policy.

Dependent

A dependent is a person, usually a family member, who qualifies for coverage under someone else’s insurance plan. Dependents are typically the spouse or children of the primary insured person, also known as the plan member or policyholder. Some plans may also cover other individuals who rely on the plan member for financial support, such as a common-law partner or a child with a permanent disability.

Dentist

A dentist is a licensed healthcare professional who diagnoses, treats, and helps prevent conditions affecting the teeth, gums, and mouth. Dentists play a key role in maintaining oral health through preventive care, restorative treatments, and patient education. Common services include cleanings, fillings, crowns, root canals, extractions, and oral examinations.

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