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The government of Canada provides millions of Canadians with disability coverage. But did you know that these programs have glaring deficiencies that prevent them from fully protecting your income?
In this post, we explain why you can’t solely rely on government-sponsored disability insurance. We’ll also show you how a private long-term disability policy gives you the best income protection.
Employment Insurance sickness benefits (EI)
Employment Insurance sickness benefits is part of the EI program administered by the Canadian federal government. It pays a taxable weekly benefit if you are unable to work for medical reasons.
Who is eligible?
Employees who have paid EI premiums in the past year, including self-employed workers who register for the program, are eligible. To qualify for disability benefits, you must get a medical report showing that your weekly earnings decreased by 40% due to illness, injury, or quarantine. Also, you must have accumulated at least 600 hours of insurable employment in the past 52 weeks or since your last EI claim.
How much does it pay?
EI sickness benefits pay you 55% of your earnings up to $638/week in 2022. Benefits start after a one-week waiting period and continue for 15 weeks.
Drawbacks
Since EI only pays for 15 weeks, you can only use it as a short-term disability benefit. While it’s suitable as paid sick leave, it won’t provide any financial protection from long-term disabilities. Also, it doesn’t sufficiently replace your income if you’re a high-income earner because of the capped benefits.
Canada Pension Plan disability benefits (CPP)
Also administered by the federal government of Canada, the CPP disability benefit provides long-term income replacement to people who have made CPP contributions and are unable to work because of a disability. Children of disabled people can also get the child’s benefit. Both benefits are taxable.
Who is eligible?
To be eligible, you must:
Be under age 65,
Have a severe and prolonged mental or physical medical condition, and
Have made the minimum contributions to the Canada Pension Plan
The Canada Pension Plan legislation defines a severe disability as one that prevents you from working any substantially gainful occupation. A prolonged disability is long-term and of indefinite duration or is likely to result in death.
There are several ways to meet the minimum contributions to the Canada Pension Plan:
Contributed in four of the past six years, or
Contributed for at least 25 years, including three of the past six years.
To be eligible for the child’s benefit, the dependent child must be:
Under the age of 18 or between 18 and 25 years old and attending school full-time, and
The biological or adopted child (if the adoption occurred before the child turned 21) or is in the custody of the disabled individual.
How much does it pay?
The CPP disability benefit pays a basic amount of $524.64/month, although you can get up to $1,457.45/month in 2022, depending on how much you contributed to CPP while you worked. The waiting period before you receive benefits is 120 days. Since it provides long-term disability benefits, it will pay you until age 65. After that, you will stop receiving the disability benefit and start receiving the Canada Pension Plan retirement pension.
For the child’s benefit, CPP will pay $264.53/month. The monthly payment goes to you if your child is under age 18 and under your custody, but it goes to the child if they are aged 18 to 25 and in school.
Drawbacks
The main drawback to the CPP disability benefit is that the low amount doesn’t sufficiently replace your income. Also, with the requirement that your disability is severe and prolonged, many disabilities won’t qualify for benefits.
Workers' Compensation
Unlike the previous two benefits, which are federally administered, provincial workers’ compensation boards look after the treatment of injured employees and adjudicate claims on behalf of the government of Canada.
Workers’ compensation provides disability benefits to employees who suffer a work-related injury or illness.
Who is eligible?
All employers must register for Workers’ Compensation, although exceptions exist. If you work for an employer with coverage, you will receive health care and wage-loss benefits if you suffer a workplace injury or illness.
How much does it pay?
The long-term disability benefit ranges from 75% to 90% of net income, depending on the province. For example, in BC, you can get 90% of your after-tax net earnings. Unlike EI and CPP, Workers’ Compensation benefits are tax-free.
Drawbacks
The major disadvantage of relying on Workers’ Compensation for disability benefits is that it only covers work-related injuries and illnesses. The reality is that most injuries and illnesses occur off the job.
Therefore, it won’t cover common disability claims like mental disorders, cancer, musculoskeletal disorders, and non-workplace accidents. For complete protection, you’ll need a 24-hour disability insurance plan.
Also, many workplaces don’t have Workers’ Compensation coverage as many business owners and self-employed individuals are not required to have it.
How Long-Term Disability Insurance Offers The Best Protection
While all three government disability insurance programs provide some basic coverage, their coverage lacks in one way or another. Even group disability coverage through your employer has its drawbacks. Only a long-term disability insurance policy can offer comprehensive income replacement to protect your financial plan. Below are the advantages it has over government programs.
Coverage
The long-term disability benefit protects you from disabilities caused by illnesses and injuries, whether in the workplace or elsewhere. You’ll receive benefits as long as you meet the definition of a disability, which means that:
Due to an illness or injury, you are unable to perform the important duties of your occupation,
You are not engaged in any gainful occupation, and
You are receiving physician’s care.
Benefit amount
Although you can’t replace 100% of your earned income, long-term disability insurance can pay up to 85% of it. Since you don’t have to pay tax on benefits, the benefit amount is close to your take-home pay.
Benefit period
Like the Canada Pension Plan, a long-term disability benefit pays you until age 65. This ensures that you’re fully protected during your entire working career.
Other benefits
A private long-term disability insurance policy can also pay you these benefits:
Partial disability: Pays a partial benefit if you are not totally disabled but can’t perform one or more major tasks in your occupation. It also pays out if you can’t do your routine tasks for at least half the time.
Cost of living adjustment: Increases your payout every year by the inflation rate, helping you keep pace with the cost of living.
Own occupation: This allows you to receive benefits even if you start gainful employment unrelated to your current job.
Return of premiums: Refunds a part of your premiums if you don’t make any claims or make only a few small disability claims.
Rehabilitation program: The insurance company reimburses you for services like vocational evaluation and job placement for a new occupation.
Need A Long-Term Disability Insurance Quote?
As you can see, long-term disability insurance addresses all the shortcomings of government programs and more. Its comprehensive coverage fills the gaps and offers you the most financial security.
We offer disability insurance from the best insurance companies in Canada. Contact us at info@briansoinsurance.com or 604-928-1628 for a complimentary consultation so we can help you find the perfect policy.
Get Your Disability Insurance Quote Now
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