Disability Income Replacement Insurance (Income Insurance)
Accidents or illnesses can occur at any time. Do you and your employees have sufficient income replacement insurance to protect your current lifestyle?
Disability Income Replacement Insurance (or income insurance) is designed to compensate an employee for the loss of income due to an absence from work, a solution for income replacement. A disability can result from a number of causes, including an injury, a serious illness or a mental health issue.
Generally, Disability Income Replacement Insurance replaces between 60% and 85% of regular income, up to a maximum amount, for a specified time if your employee:
- temporarily cannot work; or
- is permanently disabled due to an injury or illness.
The duration of a disability can be either short or long-term.
Short-Term Disability
Short-Term Disability coverage is designed to provide immediate income replacement benefits for employees who are unable to work due to an injury or illness. Short-term disability benefits are generally payable for a period of 4 to 6 months, which coincides with waiting periods for Long-Term Disability. The benefit replaces a percentage of the employee’s weekly pay up to a specified maximum. Once the end of the coverage period is reached, an employee would transition to long-term disability coverage as long as they continue to meet the definition of total disability.
Short-Term Disability plans that meet the requirements established by Employment Canada qualify for an Employment Insurance premium reduction.
Long-Term Disability
Long-Term Disability insurance provides employees with income replacement in the event of disability caused by an illness or accident. If a plan member is unable to work due to a disability, a percentage of their income is payable each month after the elimination period. These monthly income replacement benefits allow employees to meet their basic needs and maintain their standard of living.
The amount of coverage available is usually expressed as a percentage of monthly earnings. Coverage is guaranteed medically up to a certain threshold, referred to as a Non-Evidence Maximum. Additional protection is often available up to a specified overall maximum, with proof of medical insurability.
The odds of becoming disabled at least once prior to age 65, for a period of 90 days or longer, is approximately 1 in 3.
Most individuals cannot afford to continue their lifestyle without having an income for an extended period of time. For example (as shown in the table below), a 30-year-old individual that earns $75,000 a year, their total income for the period up until age 65, without factoring inflationary adjustments, would be $2,625,000.
| Annual Income | AGE 30 Total earnings until age 65 | AGE 40 Total earnings until age 65 | AGE 50 Total earnings until age 65 |
|---|---|---|---|
| $75,000 | $2,625,000 | $1,875,000 | $1,125,000 |
| $100,000 | $3,500,000 | $2,500,000 | $1,500,000 |
| $125,000 | $4,375,000 | $3,125,000 | $1,875,000 |
| $150,000 | $5,250,000 | $3,750,000 | $2,250,000 |
| $200,000 | $7,000,000 | $5,000,000 | $3,000,000 |
Your lifestyle depends on the income you generate. Should an illness or injury prevent you or an employee from working for an extended period of time, the loss of income will greatly impact your lifestyle and ability to provide for yourself or loved ones.
Disability Income Replacement Insurance is a crucial protection. It provides a monthly income while you are unable to work and can be used towards maintaining your family’s lifestyle, covering everyday expenses, paying medical bills and more, so you can focus on your recovery without the burden of financial worries.
BFL CANADA can help you make sense of the options available and design the ideal Disability Income Replacement Insurance program for your business.
To learn more about Disability Income Replacement Insurance, we invite you to reach out to us.
