Simply put

What would happen if you couldn’t work?

By Brenda Spiering, Editor,

Comments (16)

What would happen if you couldn't work?
Toronto freelance writer, Caroline Cakebread was in her early 30s when someone she knew had a terrible accident while hiking: A rock fell on his head and he lost the ability to walk and talk. “Not only was he in the hospital for months,” says Cakebread, “he was left permanently disabled and unable to work.”

It made Cakebread wonder what would happen to her if she had an accident that took away her ability to work. “I began to wonder how I’d survive — how I’d pay my bills? It was a wakeup call that inspired me to take out disability insurance.”

What is disability insurance?

Financial expert, Jim Yih, of the Retire Happy blog, says, “Disability insurance protects your greatest asset, which is your earning power.” It helps cover your loss of income by providing you with a monthly benefit if you’re unable to work for a certain period of time due to an accident or illness.

There are two types of disability insurance, short-term and long-term:

  • Short-term disability is offered by some employers as a group benefit. It generally only covers you for the first 120 days of a disability.
  • Long-term disability, available both individually and through some employers’ group plans, generally covers you from the 120th day (or other specified waiting period) to traditional retirement at age 65.

Who needs it?

Disability insurance isn’t just for the self-employed like Cakebread. Even if you have group disability insurance coverage at work (often called LTD or long-term disability), you need to be careful to ask how a disability is defined, what conditions are covered and how much and how long you can expect to receive income.

Also, Worker’s Compensation only covers certain types of workers and work-related accidents, so if you fall off your bike on the weekend and can’t work for a long time, you may not be covered. Plus, unemployment insurance sickness benefits only cover up to a maximum of 15 weeks — what happens if you can’t work after it runs out? Disability insurance (along with other potential sources of income) can help to make ends meet if the need arises.

How does it differ from other insurance?

Disability insurance is often confused with two other types of insurance: long-term care insurance and critical illness insurance. The difference is that disability insurance covers loss of income for those under age 65, whereas long-term care insurance and critical illness insurance are designed to cover health-related costs:

  • Disability insurance pays a monthly benefit to help cover loss of income for those under age 65 who can’t work because of an injury or illness.
  • Long-term care insurance can either reimburse your expenses or pay you a regular recurring benefit to help cover the cost of care you may require should it be determined that you have become significantly physically dependent or cognitively impaired and require care such as nursing care at home or a stay in a chronic care facility.
  • Critical illness insurance pays out a lump-sum to help cover costs should you be diagnosed with a serious illness or condition covered by your policy and you survive for the required period of time.

It’s therefore important to consider your specific needs and life stage when choosing the combination of insurance that’s right for you.

Cakebread says once she had her disability insurance policy in place she felt a lot better about riding her bike around Toronto. And now that she’s a mother of two, she’s considering increasing her coverage.

“The policy gives me peace of mind,” says Cakebread, noting that she has also made sure to save a little extra money in an emergency fund to cover expenses over the first few months before her policy kicks in. “I definitely hope I never have to use the insurance — but I’m glad I have it nonetheless.”

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Weekly Retirement and Business Succession News on

[…]  The tragedy of not being able to work.  Toronto freelance writer, Caroline Cakebread was in her early 30s when someone she knew had a terrible accident while hiking: A rock fell on his head and he lost the ability to walk and talk. […]

Will -- First Quarter Finance on

Thanks for the reminder. I’m pretty outdoorsy so I need to protect myself from a potential monetary disaster should I get hurt. I would hate to have someone else take care of me.

voyance amour on

Yes! Finally something about business ethics training.

Tim Landry on

I was just re-reading this article and I MUST add a few more comments. Yes – there are two types of disability insurance, short-term and long-term – but there are also two types of DISABILITIES – “total” and “non-total (can be either partial or residual – more on those in a bit). One issue which must be mentioned here is that very few group/employer plans cover “non-total” disabilities and those that do – generally – require that the “non-total” disability follow a period of “total” disability. That “follow” requirement is not too onerous if the cause of disability is a heart attack – but consider how such disabilities as MS, Parkinson’s or cancer often occur. We are “partially” disabled first and only later become totally disabled – but the impact on our income may not wait that long. Also – if we had a fire in our home that did $100K damage to our $200K home – what would our reaction be if our home insurer said “Since it is not a TOTAL loss, we pay NOTHING!”? That is most group plans. Also – how would you like it if you were forced to change careers after 2 years of disability? Again – that is many group plans. Also – your ability to GET the job is irrelevant. They just care about your ability to DO it! Also – unless your plan provides a more generous wording – that new job only needs to give you 50% of what you are used to living on in order to be considered “reasonable”

Now – why do you need coverage for “non-total” disabilities? At least two reasons: If our job is knowledge and communication based, it is VERY DIFFICULT to be totally disabled. If you can think and talk – you can work – at least somewhat. Also if you are motivated to work – because being at home is just not your thing – coverage for non-total disabilities will allow you to maintain your lifestyle.

“Partial” versus “residual” – “partial” concerns itself with what duties you can do and/or the time you can work at your job. Generally the definition reads something like: “Inability to perform one or more of the important duties of your regular occupation OR the ability to perform all the duties for less than one-half the time normally required” There is no question about the amount of income you are earning while “partially” disabled. Generally you will receive 50% of the benefit payable for total disability for UP TO 36 months – and 25% thereafter if partial disability continues.

“Residual” is based totally on the % of income lost due to disability. If you lose less than 20% of your income, nothing is paid. If you lose 80% or more – full benefits are paid. If you lose – for example – 25% of your income, then 25% of the benefit for total disability is paid

Tim Landry on

A few things – let me start by stating that I have been a DI consultant for 44 years – and have seen Disabilities on my brother – my dad – my mom – my son and myself – and frankly every time I read that statement “There are two sure things in life – death and taxes – I want to scream! There are THREE – we will be disabled before we die. The only uncertainties are timing and duration! I am already disabled and have been for almost 50 years – due to a work accident which left me with limited sensation in my right hand – basically my thumb, index and middle fingers of my right hand have very limited use. I KNOW I WILL BE DISABLED AGAIN! Will I be lucky like my grandmother who went out for dinner with one of her sons and a grandchild – had a lovely supper – came home – had a good night’s sleep – woke up and went out to the garden and collapsed and died? Or will I be like the mother of an acquaintance of mine who suffered from dementia for almost 20 years? I do not know. Stephen Harper could repeal Income Taxes tomorrow (YEAH RIGHT – but he COULD). It would literally take an act of God to eliminate our disabilities. If you can guarantee me that you will just drop and die – you do not need protection – but who can make that guarantee?

It seems that most people are worried about accidents. The split is approximately 65/35 in favour of SICKNESS! CSST/Workmens Comp? OK – legally they are supposed to cover job related sicknesses. Good luck! In my 67 years, the most obvious job related sickness was the case of the Quebec asbestos miners. It took almost half a century to settle that one. Also – the company that insures the largest number of Canadians against Disability (individual and group) did a study of all of its DI claims – and only 6% of its ACCIDENT CLAIMS had any link to CSST/Workmens Comp – that’s 6% of 35% – or about 2% of ALL claims.

My first disability was a Workmens Comp claim – I was working during the summer at a brewery owned by my godfather in NB when I fell through a case of broken beer bottles that I had been unloading off a truck. My godfather – who was good friend of my dad – suggested they sue his company. Sorry – not possible, There are 3 stages to a claim: (1) It happens and you need treatment NOW! Workmens Comp is GREAT – you get good service and are treated well; (2) You are recovering – but not fully back to whatever level you will eventually get to. Again the service is great. (3) You reach whatever level you are going to get to – but are left with some disability (Me) – this is where things get more difficult. My doctor said a 30% permanent loss of use – theirs said 3% – THEY WIN! Your only recourse is their own appeal system – good luck – or the appropriate Provincial Legislature.

Now – stress or psychological claims – no question they are harder to claim for – and you certainly do need support (SOLID) from your doctor AND Psychiatrist/Psychologist. The problem is this is the claim most open to abuse – and the claim that basically bankrupted two major DI carriers – Paul Revere and Provident. It – along with back claims – is the most common cause of disability today and I understand why carriers protect themselves

    David Deslauriers on

    Good afternoon Tim,

    I appreciate your comments and the history lesson on DI claims (psychologically-related) that bankrupted two companies. It is indeed unfortunate that bogus claims clog up the system and eat up the limited insurance money available to the detriment of those submitting legitimate claims and those whose livelihood depends on jobs within the insurance industry. We’ve seen the same thing happen in the automobile and other insurance industries, prompting the companies to raise their rates and restrictions because of the few and not the many.

    If a person pays into DI insurance for over 35 years and makes a legitimate claim (psychologically-related) backed up by medical evidence and specialists, there should not be any antagonism or secondary questioning (grilling) by DI case workers. Alas, this is all too often the case, where claimants are made to feel as if they are on trial. This is not right, especially when people are too ill, vulnerable and unable to fight back, often prompting them to simply give up their legitimate claim.

    Treating others as you yourself would like to be treated is not a difficult Godly principle to live by, especially if you live by His grace and love. I’m not dragging religion into this forum to make a point, just saying that those who scrutinize claims, not all of them, should sometimes put themselves in the shoes of those who are suffering before asking pointless questions or trying to trip them up in their testimony.

      timlandry45 on

      Hi David – and good afternoon back. While I certainly will not attempt to excuse companies being rough on claimants there are certain issues which need to be looked at in this type of claim in particular. First of all – everything I will be saying is based on a top level non-cancellable individual policy – where amounts and terminology – EVERYTHING is guaranteed. So – scenario – you buy the policy at a certain level of benefit and income – for sake of example $100,000 which would provide a benefit today of approximately $4,500/mth ($54,000/year) tax-free if you became disabled. Now – for whatever reason – and it may well be DUE to the psychological issues and in any event will certainly worsen them – your income gets cut in half – to $50,000 annually. I repeat – the stress of covering your $100K lifestyle with $50K of income is in itself stressful. However you know that if you see your psychiatrist and he signs off on your disability – your income goes to $54,000 TAX FREE – and immune from seizure by creditors. Might this be tempting? This is part of why insurers dig – or part of it. By the way the religion thing is fine with me. I have recently rediscovered my faith and am quite active. I am only bringing this up to explain WHY they dig. Let me just ask one last question – individual or group policy?

      David Deslauriers on

      Hi Tim,

      Thank you for responding back and for the explanation. Mine is a federal government group insurance policy. DI premiums are deducted monthly from my government pay cheque. Benefits, if approved, do not kick in until 13 weeks have passed from the date you first fell ill. Any sick leave credits you may have accumulated over your career must first be used. So, if you have less than 13 weeks accumulated, you must first use them and then apply for Employment Insurance (EI) medical benefits to cover you until 13 weeks is reached. DI benefits cover you for 70% of your current salary.

      Have a great day, and may God bless.


      Tim Landry on

      Interesting – since it is a group plan. the major fear that I mentioned for individual carriers – paying a significantly higher benefit than current income might justify – largely disappears. One question – given that it is a plan for government employees – is an insurer even involved or is it “self-insured” – I do not need to know WHO the carrier is (if there is one) – just IS there one?

      David Deslauriers on

      Hi Tim,

      Yes, a private insurance company is involved. They review all medical evidence/testimony from family doctors and specialists as well as information provided by employers and human resources departments. If they deem it appropriate to do so, they will arrange for the insured to see a medical specialist (psychiatrist in my case) of their choice to provide them with an “independent psychiatric evaluation.” Mine lasted two and one-half hours and resulted in a 22-page report. I do not disagree with this latter evaluation. In my case and perception, it was beneficial to improving my condition. However, at any point in a person’s claim, if they are not completely satisfied, they can and will deny claims or discontinue payments. The insured and insurer often go to toe to toe (by phone for up to 30-45 minutes) to make or further substantiate their case (as in mine), which is up and above all the information provided to them previously. This is mentally and physically exhausting, not to mention frustrating, especially considering that the case worker assigned to your claim has no medical credentials and is solely acting in an administrative capacity.

David Deslauriers on

I agree that Disability Insurance (DI) makes sense and is a lifeline in times of sickness and unpaid time off work. I will say from personal experience (on DI since Jan 2012) that whoever applies for DI, when and if sickness prevents you from working, had better be prepared for a battle with the insurance company, especially in cases involving mental illness. Physical disability is right in front of you for all to examine, so it might not be as difficult to prove and obtain benefits. Be assured, however, if you are off work due to major forms of depression and/or anxiety that the insurance company will put you through the grinder before approving benefits. My advice to anyone who falls into this category or suffers from a related mental illness is to absolutely ensure your family doctor and/or psychiatrist, if you are seeing one, documents your file with plenty of information to support your claim. Failure to do so will most likely lead to benefits being denied. I am not being negative, retaliatory or necessarily critical of DI providers; just telling you how it is. These companies are not in the business of paying out money to everyone who applies for benefits, and they want to get you back to your substantive job as soon as possible if they do approve benefits.

Brian So on

Great post! Many people don’t know that 1 in 3 people will become disabled for 90 days or longer before the age of 65. While many people have their families protected from the risk of death with life insurance, the greater risk of disability is often ignored.

Brian Poncelet,CFP on

Disability insurance is always a great idea!

A study done in 1985 found the following:

Where disability lasted more than 90 days, the average length of a disability for people
aged 35 was 33.6 months
45 38.4 months and at
55 31.2 months.

A few companies offer up 50% of all your money back every 7 or 8 years if no claims are made. See policy for details.

The other type of disability need for self-employed is business overhead expense. This can cover rent, cell phone.
heat, internet, car payments (related to the business).


David on

You are right in the best case scenario. The unfortunate truth is that when you file a claim, you are placed in a position where you are guilty until proven innocent. Meaning that the onus is on you and your medical professionals to provide to the DI insurance company information which beyond a reasonable doubt substantiates your disability. Any failure to to do so will be met with resistance and potential denial of disability benefits. That is the honest to God’s truth. They (i.e the DI companies) are not in the business of losing money. I have witnessed first hand claims where people have the weakest of claims and have continued to receive DI benefits, whereas those who are in the direst of medical situations have had DI benefits or DI payments cut off prematurely. Administrative case workers at DI companies should not trump decisions made by seasoned medical professionals. And, yes, this is actually what takes place. Administrative DI case workers and their superiors do often overrule decisions made by seasoned medical professionals at the private and Health Canada levels.

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