How Disability Insurance Works—And Why You Probably Need It
Protecting Your Income So You Can Focus on What Matters Most
When people think about insurance, life insurance often comes to mind first—especially for families with dependents. But there’s another form of protection that’s just as important, and often overlooked: disability insurance.
Imagine this scenario: you’re healthy, in your 30s or 40s, working hard to support your family and build a strong financial future. Then suddenly, an accident or illness takes you out of work for six months… or longer. How would your household manage without your income?
This is where disability insurance steps in. It provides a financial safety net that allows you to focus on recovery, not bills. In this post, we’ll walk through what disability insurance is, how it works, who needs it, and how to make sure your coverage fits your life.
What Is Disability Insurance?
Disability insurance replaces a portion of your income if you become unable to work due to illness or injury. It ensures that you can continue to meet financial obligations like:
Mortgage or rent
Groceries and utilities
Childcare and education costs
Debt payments
Retirement or education savings
There are two main types of disability insurance:
Short-term disability insurance: Typically covers up to 6 months. It’s often available through employer benefits and kicks in after a brief waiting period.
Long-term disability insurance: Provides coverage beyond 6 months, sometimes until age 65. It is essential for more serious or prolonged disabilities.
Some policies begin paying after 90 or 120 days and continue until you return to work or reach the policy’s end date.
Why It Matters—Even If You’re Young and Healthy
It’s easy to assume disability insurance is only for older people or high-risk workers. But consider this:
1 in 3 Canadians will experience a disability lasting more than 90 days before the age of 65.¹
Common causes include mental health issues, musculoskeletal injuries, cancer, and chronic illnesses—not just accidents.
If you’re self-employed, a contractor, or don’t have strong benefits through your employer, you may be especially vulnerable.
Disability can affect anyone at any time. Without income protection, the financial impact can be immediate and long-lasting—not just for you, but for your entire family.
How It Works
Disability insurance typically works like this:
You experience a disabling condition that prevents you from performing your regular job duties.
You apply for benefits, usually after a waiting (or “elimination”) period.
Once approved, you’ll receive monthly income replacement, usually 60–85% of your gross income, depending on your policy.
Payments continue until you recover, return to work, or reach the policy’s end (often age 65).
Some policies cover “own occupation” disabilities—meaning you’re covered if you can’t do your specific job. Others require that you be unable to work in any occupation for which you’re reasonably suited. This is an option you can select when you’re building the best plan for you.
What Does It Cover?
Disability insurance typically covers:
Illnesses like cancer, heart disease, and autoimmune conditions
Mental health disorders such as depression and anxiety
Injuries from accidents (including those outside of work)
Chronic conditions that worsen over time (like arthritis)
It generally does not cover:
Short-term illnesses like the flu or colds
Disabilities caused by self-inflicted injuries
Issues resulting from criminal activity
The key is to understand your policy details—including definitions of disability, waiting periods, and benefit length.
Do You Already Have Coverage?
Many employers offer some disability coverage, but it’s not always enough. Here’s what to check:
How much income replacement does your employer’s policy offer?
How long are benefits paid out?
Are there caps or maximums on the monthly payout?
Is the coverage portable—meaning, can you take it with you if you change jobs?
If your employer doesn’t offer long-term coverage, or if you’re self-employed, you may need a personal disability insurance policy. These are customizable to your needs and follow you regardless of employment status.
How Much Does It Cost?
Premiums vary based on:
Your age and health
Occupation (risk level)
Coverage amount and benefit period
Elimination period (the time between becoming disabled and when payments begin)
As a rule of thumb, expect to pay between 1% and 3% of your annual income for a solid disability insurance policy. That might seem like an added cost—but compare that to losing 100% of your income during a health crisis.
Choosing the Right Coverage
When shopping for disability insurance or reviewing what you already have, consider the following questions:
Is the policy “own occupation” or “any occupation”?
What’s the elimination period (30, 60, 90, or 120 days)?
How long will benefits be paid—2 years, 5 years, or until age 65?
Are the benefits indexed to inflation?
Does the policy cover partial or residual disability?
Working with a licensed advisor like us can help you weigh these options and find the right fit for your needs. You insure your car, your home, and your life. But for many families, your ability to earn an income is your greatest asset—and it deserves the same protection.
Disability insurance isn’t just a financial tool; it’s a form of self-care and a safeguard for your family’s lifestyle, dreams, and future. Whether you're the primary earner or contribute in other ways, this type of coverage ensures you’re not caught off guard when life throws the unexpected your way.
Want to know what kind of disability coverage makes sense for your family?
We can help you review your current benefits, explore personalized policy options, and make informed choices that align with your goals and values. Let’s talk.