Individuals & Families

Disability Insurance For Self-Employed Canadians - What You Need To Know (2024)

Garrett Agencies Team
March 15, 2024
5 min read

In Canada, before reaching the age of 65, approximately one in four working-age individuals will face a disability that significantly hinders their ability to work for an extended period. If you found yourself among this 25%, would you be able to manage your financial obligations?

This is where the significance of disability insurance for self-employed individuals and business owners becomes evident. Such insurance is pivotal in safeguarding your income, lifestyle, and potentially your business operations. It holds particular importance for those without access to employer-provided group plans.

The thought of encountering a severe illness or injury is unsettling, yet the reality is that accidents and health issues are unpredictable. Being prepared is not just wise; it's necessary.

Essential Considerations for Disability Insurance

  • Income Protection: Disability insurance acts as a safety net, offering income support if you're unable to work due to a serious illness or injury, ensuring you and your family can maintain your standard of living.
  • Vital for Self-Employed Individuals: For those who are self-employed, an individual insurance plan is a critical component of financial security, providing financial support and additional benefits.
  • Cost Variables: The cost of disability insurance for self-employed individuals depends on several factors, including your profession, desired coverage level, and the amount of income you wish to have replaced.
  • Customizable Policies: There are various individual disability insurance policies tailored to meet different needs. Consulting with an insurance advisor is key to finding the right fit for you.

How Disability Insurance Works if You’re Self-Employed

Disability insurance offers a form of income protection through a monthly premium. Should illness or injury prevent you from working, this insurance helps cover your monthly expenses.

Those who are working as salaried employees might receive coverage through employee group benefit plans, including short-term (STD) and long-term disability (LTD) insurance. Employees may also be eligible for government benefits through Employment Insurance (EI) and/or the Canada Pension Plan (CPP).

Self-employed individuals and business owners on the other hand face different circumstances. Because you do not have an employer providing disability benefits for you, it is incumbent on you to source this coverage out yourself. Though it’s possible to be eligible for government benefits from CPP or EI, having an individual disability insurance plan that you own and control ensures you’ll continue to have an income stream in the event of a disability.

Typically, individual plans will work as follows:

  1. A monthly premium secures your coverage.
  2. Upon experiencing a serious illness or injury that prevents you from working, you file a claim with the insurance company.
  3. Approved claims result in a monthly payment, covering a percentage of your usual earnings, often tax-free, to replace your lost regular income.
  4. Plans may also offer access to specialists and support services to facilitate a quicker recovery and return to work.

Common Disability Causes for Self-Employed Workers

Contrary to popular belief, only a small fraction of disabilities are due to accidents. More frequently, they result from illnesses such as:

  • Mental Health Issues: Conditions like depression and substance abuse are leading reasons for work absences.
  • Cancers: The demands of treatment can make it difficult to work.
  • Cardiovascular Diseases: Diseases requiring significant recovery time, such as heart disease, heart attack, and stroke.
  • Musculoskeletal Diseases: Conditions like arthritis can severely limit work ability due to pain and mobility issues.

The Value of Disability Insurance for Self-Employed Canadians

Your most valuable asset isn't physical—it's your ability to earn. For example, a 35-year-old earning $75,000 annually has the potential to earn over $3 million in the next 30 years, assuming a modest annual salary increase of about 2% per year.

For self-employed individuals:

  • You won’t have employer-provided insurance protection.
  • You’ll likely have fixed operating costs (e.g. rent for office space, internet and stationary, or potentially employee salaries), which adds financial pressure.
  • The responsibility towards clients or customers, with prolonged absence potentially impacting long-term income.

An individual disability insurance plan can help to address these potential gaps and shortfalls that are likely to arise if you become disabled and unable to work.

Benefits of an Individual Plan:

  • Financial Support: Disability insurance provides a financial cushion, ensuring you can meet your obligations without depleting savings, relying on others, or taking on debt.
  • Access to Specialists: Quick access to medical and rehabilitation services can expedite recovery.
  • Return-to-Work Support: Beyond financial benefits, work provides a sense of purpose and fulfillment. Many policies offer support to help you return to work, including job search assistance and dependent care.

Selecting the Right Plan

Choosing the appropriate disability insurance involves comparing plans based on coverage, benefits, and service quality.  A professional advisor can assist you with this process. Considerations include:

  • Occupation: Does the insurance company offer coverage for your type of occupation/profession?
  • Disability Definition: Understand how each plan defines "disability."
  • Benefits and Support: Evaluate the benefit amount, duration, and additional support services offered.
  • Customer Service: Look for providers with a supportive claims process and assistance.

Is Disability Insurance Worth It for Self-Employed Workers?

Facing months or even years without work can devastate your finances – perhaps irreparably. Disability insurance is a fundamental element of any financial wellness strategy, ensuring you can meet your living expenses even when you're unable to work.

Eligibility and Costs for Self-Employed Canadians

Disability insurance policies vary, and so do their costs. Premiums depend on your profession, the desired coverage, as well as your age and health history. Discussing your specific needs with an insurance advisor or broker can help tailor a plan that matches your lifestyle and financial goals, ensuring you're well-protected against the risk of disability.

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