Disability insurance: Answering your questions

By ATB Wealth 25 March 2021 4 min read

Protecting your most valuable asset

Have you ever thought about what your most valuable asset might be? Most people might think of their home, a treasured piece of art or their family. 

Your most valuable asset is you. It’s your health, wellness and quite often, your ability to earn an income to support yourself, your family and many aspects of your life, livelihood and lifestyle that are extremely valuable. 

Facing an injury, diagnosis or illness is hard to think about, but it’s important to consider what you would do if you could no longer work due to a disability or sickness. 


Disabilities in Canada are more common than you may think

Many Canadians may encounter a disability of some form during their lifetime. 

In 2017, one in five (22%) of the Canadian population aged 15 and over, (that’s about 6.2 million individuals), had one or more disabilities. The prevalence of disability increased with age, from 13% for those aged 15 to 24 years, to 47% for those ages 75 years and over. Women (24%) were more likely to have a disability than men (20%). The most common disabilities were related to pain, flexibility, mobility and mental health.1

Disabilities can be short or long-term and can disrupt your ability to earn an income in your current job or work of any kind, depending on the type and severity of the disability. 


What is disability insurance?

Disability insurance pays you a percentage of your established monthly income if your ability to work is removed or reduced by an injury or physical or mental illness. It allows you the opportunity to maintain your lifestyle and support yourself and your family while you're not working.


What types of disability insurance are available? 

There are several options to choose from, including the total benefit amount and length of duration of the insurance. The insurance can be taken out for a predetermined time frame (for example, two or five years) or it can be up to a certain age (for example, age 65). 

Like most types of insurance, disability insurance is purchased for a limited term, after which it must be renewed.


Why should I consider getting disability insurance?

Disability insurance provides you with peace of mind in case you face a disability of some kind. It allows you to do things such as paying your mortgage and bills, keep up with vehicle payments, support yourself and any dependents if you are unable to work for a period of time. 

It gives you the chance to focus on recovery or managing the disability, knowing that financially you will be okay. 


Can I draw on my emergency savings? 

A lot of people automatically think about using their savings in case of a disability or emergency, but this might not be the most practical approach. For example, if you saved 5% of your income every year, if you had six months of total disability, you would draw 10 years of savings all at once. 


Could I borrow from my bank? 

Borrowing from your bank is also an option to consider, but it is important to keep in mind that banks will look at your employment status when they consider lending money. 


I have a spouse who works. Do we still need disability insurance? 

That’s also an option, but you would want to carefully consider how much your bills and lifestyle add up to every month. Could you survive on one income for some time? How would that change your family’s standard of living? 


How much does disability insurance cost? Do I need a health assessment? 

The cost of disability insurance is based on a health assessment made at the time you purchase a policy. Several other factors are taken into account, such as your occupation, income level, the duration over which you are eligible to receive compensation and how quickly you become eligible to access compensation after you are disabled. 

All of the medical and financial underwriting (risk assessment) is completed at the time of the application. 


How quickly does compensation arrive if I need it? 

At the time of application, there are customizable options for you to choose from around the start date of compensation after a disability. These times can vary to match with your particular situation, which takes into consideration the immediate funds available and the types of funds available in the short term. 

Compensation from a disability insurance claim usually starts after a specified waiting period and is usually paid in monthly instalments, either for the predetermined time, up to a certain age or until you’re able to return to work. 


Are disability benefits taxable?

In general, disability benefits are only subject to income taxes if your employer pays all or part of the disability premium. If you pay the entire premium yourself, generally benefits are not taxable. 


Disability insurance is a practical peace of mind solution.

You can purchase an individual disability plan to protect your household from the loss income that may result from sickness or an accident. This form of insurance policy provides disability coverage for a wide variety of circumstances while still being flexible for your specific situation and needs. 

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