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Canadian Rules for Disability Insurance

Disability insurance coverage comes in many forms in Canada. In addition to private coverage options, you may be covered by a group disability policy at work, or by the Canada Pension Plan (CPP) disability benefit. Before you go out and purchase a large amount of private disability insurance that may end up costing more than it is worth, research all of your options as well as their associated rules and regulations.

  1. CPP Disability Benefit

    • The CPP disability benefit provides a monthly payment to a contributor who is disabled and to their dependent children. You are eligible for the disability benefit if you meet the following three criteria:
      1) You are under the age of 65
      2) You stopped working due to a medical condition
      3) You paid into the CPP in four of the past six years or you paid into the CPP for at least 25 years and you made contributions in three of the past six years.

      The disability must be deemed severe and prolonged as defined under CPP legislation, and the CPP disability benefit must be included in your taxable income. As of March 2010, the average monthly contributor disability benefit was $811.75, and for dependent children it was $214.85.

    Group Disability Insurance

    • Your employer may make available to you a group benefits package that includes disability insurance coverage which typically includes Short Term Disability (STD) and Long Term Disability (LTD). STD coverage is paid by the employer and provides a percentage of your income if you cannot work due to accident or illness for a period of up to 26 weeks. The benefit is taxable because the premiums were paid by the employer.

      LTD coverage is purchased by you and you usually get a choice of coverage options. LTD will provide you with an income based on a percentage of your salary if your disability continues beyond the 26 week period covered by STD. The LTD benefit is not taxable since the premiums are paid by you. LTD benefits generally stop at age 65, where they are replaced by CPP retirement and disability pensions.

    Private Disability Insurance

    • Private disability coverage can be purchased as a supplement to existing group coverage or as a stand-alone product. Coverage limits are based on your type of occupation and your salary, and typically the availability and quality of coverage increases with the level of education and training required for your occupation type. Professional occupations such as doctors, lawyers, accountants and dentists are eligible for the best coverage features and lowest premiums due to the income potential and lower risk of claim.

      Disability benefits are received tax-free and are generally limited to 70% of the insured person's income.

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