Being your own boss has numerous benefits, but it can be tricky to achieve long-term financial security. This is because you take full responsibility for your business and determine its success and failures.
However, what happens when you can’t work because of a disability; what would be your fate and your family’s? What if the disability lasts for months or years? How do you intend to sustain yourself or your business?
One of the tools smart self-employers use to achieve long-term financial security in Canada is disability insurance for self-employed.
There are different types of disability insurance offered by different companies. You don’t have to worry. This post will guide you through the best disability insurance for self-employed Canadians and how to protect your income with the best policy.
Here’s a comprehensive guide on buying the best disability insurance for self-employed Canadians.
Long-Term Disability Insurance For Self-Employed
Generally, disability insurance is a type of insurance that serves as your income if you’re unable to work because of a disability. Long-term disability insurance (LTD) provides disability benefits to self-employed Canadians for a minimum of two years.
Long-Term Disability insurance pays monthly benefits for two or more years to self-employed professionals who cannot work due to a disability. Like other types of insurance, such as life insurance and critical illness insurance, you’re expected to pay a monthly premium and other fees in exchange for disability coverage.
Most times, long-term disability insurance replaces about 60% to 70% of your normal income and kicks in after any Federal Employment Insurance Benefits, paid sick leave, etc., ceases.
As a self-employed Canadian, this disability insurance helps you sustain cash flow regardless of whether you can work or not. It allows you to choose any benefit period above two years. Sometimes, it offers benefits until you turn 65.
The insurance company pays the money into your bank account, and you can use the benefit for whatever purpose without restrictions. You can use it as income replacement and pay for household expenses, mortgages, groceries, phone bills, utilities, and more.
What Does a Self-Employed Disability Insurance Cover?
As mentioned, disability insurance covers 60% to 85% of your income for a certain period if you are temporarily or permanently disabled and are unable to work.
That said, payouts from disability insurance are often made monthly. So you can use the funds for your personal and business expenses tax-free.
Benefits of Disability Insurance for Self-Employed?
Here are some of the major benefits of buying disability insurance as a self-employed:
1. Income Replacement
Income replacement is one of the main reasons to have disability insurance.
When you buy disability insurance, you pay a monthly premium. You get a monthly payment if you cannot work due to a disability.
Thus, you don’t have to worry about sacrificing your current standard of living or closing your business because of any disability condition.
2. Constant Cash Flow
If you’ve been self-employed for a while, you’ve probably learned a few things that might not have been obvious at the outset.
One of the biggest is the importance of having a steady cash flow. You can’t afford to get sick or injured if you haven’t saved enough to support yourself and your family. You can’t afford to take time off from work.
Thus, disability insurance is what you need to stay on top of your business even when you’re unable to work because of disability.
3. Retirement Plan
If you face a disability, it may affect your retirement planning because it can be hard to save when you’re no longer working.
Thus, disability insurance is one of the smartest ways to save for retirement because you can still earn income when you’re disabled and can’t continue working.
Long-Term Disability Insurance Vs. Short-Term Disability Insurance
The best self-employed disability insurance plans are long-term disability insurance policies. While they are more expensive than short-term plans, they provide much more coverage. However, there are a few things to consider when choosing disability insurance. Most importantly, you should consider whether you have an emergency fund or not.
Suppose you’ve already built an emergency fund that will cover your expenses for three or more years when you’re disabled and unable to work. In that case, you can consider short-term disability insurance.
On the other hand, long-term disability insurance could be your best option if you don’t have an emergency fund that can sustain you and your family when you cannot work. Overall, the best type of disability insurance is one that suits your current situation.
How Much Self-Employed Disability Insurance Do You Need?
Benefits from your disability insurance should be enough for you and your family to live a comfortable life when you cannot work. As a result, you need to calculate all your monthly recurring expenses, such as bills, food, transportation, mortgage, and other expenses.
After that, you should subtract all the income you’ll receive during your disability from other sources, such as your lease, investments, etc. Thus, the amount of disability insurance you need should be the excess of your monthly expenses over your income.
How Much Does Self-Employed Disability Insurance Cost?
The cost of self-employed disability insurance ranges from 1-3% of your annual income. In addition to individual factors such as your health, age, and occupation, your disability insurance policy’s coverage and period determine the cost.
However, the earlier you buy a disability insurance policy, the cheaper it is. But if you are concerned about your budget, you can reduce the cost of your insurance by combining it with a growing emergency fund.
The more you grow your emergency fund, the more you can rely on it and your disability insurance against any disability that will stop you from working.
Where to Get The Best Disability Insurance For Self-Employed in Canada?
When looking for disability insurance for the self employed in Canada, it is best to consult an online insurance broker. Online insurance brokers serve as low-cost alternatives for Canadians looking for self-employed insurance.
But with the increasing number of online brokers in Canada, you want to choose the best online insurance broker. One of Canada’s most reputable online insurance brokers is Bounc3. This broker offers Canadians access to personalized advice and affordable self-employed disability insurance.
In addition, Bounc3 utilizes advanced technology to simplify online insurance purchases through its partner insurance carriers in Canada.
This insurance product replaces your income if you experience a disability. A disability is any condition that prevents you from working such as an injury resulting from an accident, or a debilitating long-term illness like heart disease, cancer, diabetes or depression.
Additional Disability Benefits for Self-Employed Canadians
As a Canadian, you may be eligible for other disability benefits in Canada, such as the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP). The Canada Revenue Agency administers the CPP and QPP to disabled individuals who have contributed to the plans and cannot work.
Canada Pension Plan (CPP) Disability Benefits
The Canada Pension Plan (CPP) is a monthly disability benefit for Canadians under 65 years old who have contributed enough to the CPP but cannot work due to mental or physical disability, or have long-term and deadly disability conditions.
However, your CPP disability benefit will automatically convert to a CPP retirement pension when you turn 65. The amount you contributed to the CPP determines your payment.
Learn more about the CPP benefits amount and payment dates.
Quebec Pension Plan (QPP) Disability Benefits
The Québec Pension Plan disability benefits are administered to disabled Quebec citizens and their dependent children. But to receive the QPP disability benefits, you must reside in Quebec, be less than 65 years old, make enough contributions to the QPP, and have an eligible critical and permanent disability condition.
An eligible disability is a disability recognized by Retraite Québec. To be eligible, you must have a severe disability that prevents you from working completely. Furthermore, an eligible disability must be permanent. That is, the disability must be long and have no sign of recovery.
However, it is also possible to get a disability pension if you are between 60 and 65 and unable to work due to health reasons. But to be eligible, you must have contributed to the CPP for at least four of the six previous years of your contribution period.
Moreover, you will receive an additional disability amount as a beneficiary of the QPP retirement pension if you cannot work full-time and are under 65 years of age.
Final Thoughts on Disability Insurance for Self Employed
Life is full of surprises, and disability is one of them. Hence, the need for disability insurance. While the major benefit of disability insurance is to replace your income if you’re unable to work due to disability, it also provides cash flow to your business and helps sustain your retirement plan.
Thus, disability insurance is something you shouldn’t neglect as a self-employed Canadian. Whether you’re just starting or have established your business already, it’s never too late to have disability coverage.
You should be careful of the limitations of government disability benefits, such as the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP). While these benefits may be helpful for your disability income, they can’t replace a considerable part of your income.
Thus, I recommend you apply for government disability benefits and buy disability insurance to have enough funds when you cannot work due to disability.
This insurance product replaces your income if you experience a disability. A disability is any condition that prevents you from working such as an injury resulting from an accident, or a debilitating long-term illness like heart disease, cancer, diabetes or depression.
FAQs on Disability Insurance for Self Employed
Can I Get Disability Insurance If Self-Employed?
Yes, there are disability insurance policies designed for the self-employed. Like other types of insurance, disability insurance for the self-employed pays benefits in exchange for monthly premiums.
Is Disability Insurance Worth Getting?
Yes, disability insurance is worth getting for everyone concerned about their long-term financial well-being. Since nobody knows tomorrow, disability insurance is like a financial precaution against when you’re unable to work due to disability.
What is the Most Affordable Way to Get Disability Insurance?
Online brokers are the most affordable way to get disability insurance because they partner with different insurance companies. Furthermore, online brokers such as Bounc3 help you choose a plan that suits your situation within your budget.
Can I Cancel My Disability Coverage at Any Time?
Based on your disability insurance policy, you can cancel your coverage by contacting your insurer.
Have additional questions on disability insurance for self-employed Canadians? Kindly drop them in the comment section.
Hi, I'm Adeola Adegoke. I am a licensed Insurance Broker in Manitoba, and I hold a master’s degree in Mathematical Sciences (with a major in Financial Modeling) from the African Institute for Mathematical Sciences (AIMS), Tanzania.
Also, I have a second master's degree in Statistics from the University of Regina, and I am currently pursuing my Ph.D. in Statistics at the University of Manitoba.
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