Disability Insurance for Self-Employed Canadians: The Ultimate Guide

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.

One of the tools smart self-employers use to achieve long-term financial security in Canada is disability insurance.

Imagine a situation where you can’t work because of a disability; what would be your fate and family? It’s an open answer!

This is why you need disability insurance to sustain yourself and your family when you can’t work due to disability.

But how do you choose the best self-employed disability insurance policy since there are different types of disability insurance offered by different companies? You don’t have to worry.

Here’s a comprehensive guide on buying the best disability insurance for self-employed Canadians.

What is a Disability?

A disability is a condition that affects you from working and other work-related activities due to injury or illness.

That said, the most common types of disability in Canada include mental health challenges, muskoskeletal, and cancer.

However, the definition of disability can vary from one insurer to another. Even among the same insurer, the definition can vary.

But you can find out what disability means under your insurance plan by contacting the administrator or agent.

What is Self Employed Disability Insurance?

Self-employed disability insurance refers to disability insurance designed for self-employed persons.

Generally, disability insurance is a type of insurance that serves as your income if you’re unable to work because of 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 the disability coverage.

Usually, disability insurance will provide 60% to 85% of your primary income for a certain period if you are disabled.

Thus, in the event of a sudden accident or illness, disability insurance protects you and your family financially.

As a self-employed Canadian, disability insurance helps you sustain cash flow regardless of whether you’re able to work or not.

What Does a Self-Employed Disability Insurance Cover?

As mentioned previously, 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.

Why 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. In return, you get a payment every month if you’re unable to 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. If you haven’t saved enough to support yourself and your family, you can’t afford to get sick or injured. 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 your retirement because you can still earn income when you’re disabled and can’t continue working.

What are the Types of Self-Employed Disability Insurance?

There are two major types of self-employed disability insurance, namely: short-term and long-term disability insurance.

1. What is Short-Term Disability Insurance?

As the name implies, short-term disability (STD) insurance replaces your income when you’re disabled and are unable to work for a short period.

Generally, short-term disability insurance provides coverage for less than a year if you can’t work due to disability.

But after your short-term disability period ends and you’re still unable to work, you can switch to long-term disability coverage.

Note: The plans are part of group benefits, not sold individually.

2. What is Long-Term Disability Insurance?

Unlike short-term disability insurance, long-term disability (LTD) insurance replaces your income when you’re disabled and are unable to work for a long period.

Depending on your plan, you may be able to receive long-term disability benefits for up to two years if you cannot return to work.

However, you can get benefits for as long as you are unable to work under the long-term disability insurance coverage.

What Type of Self-Employed Disability Insurance Should I Get?

The best self-employed disability insurance plans are long-term disability insurance policies. While they are more expensive than short-term plans, they provide a lot 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.

If you’ve already built an emergency fund that will cover your expenses for 3 or more years when you’re disabled and unable to work, 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’re unable to work.

Overall, the best type of disability insurance is one that suits your current situation.

How Much Self-Employed Disability Insurance Should You Purchase?

Benefits from your disability insurance should be enough for you and your family to live a comfortable life when you’re unable to 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 typically 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 also 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.

Top Questions to Ask When Buying Self-Employed Disability Insurance

Here are the top questions you should ask your administrator or insurance agent before buying disability insurance in Canada:

Questions on General Terms and Conditions

  • What is the plan’s definition of disability?
  • Does the plan have any pre-existing conditions?
  • Is there any exclusion?

Questions on Premiums

  • How much does the plan cost?
  • Are you required to make monthly premium payments during disability?

Questions on Benefits

  • How much benefit will you receive monthly during disability?
  • Are the benefits subject to adjustment for inflation?
  • How long does it take to start receiving the benefits?
  • Are the monthly payouts taxable?
  • Are there partial disability benefits?

Questions on Individual Plans

  • Is the plan “guaranteed renewable?”

Questions on Group Plans

  • Is the group plan self-funded or provided by an insurance company?

Where to Get Self-Employed Disability Insurance in Canada?

When looking for self-employed disability insurance 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.

Get a free disability insurance quote now from Bounc3.

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 that have contributed to the plans and are unable to work.

That said, the following is an overview of the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP).

Canada Pension Plan (CPP) Disability Benefits

The Canada Pension Plan (CPP) is a monthly disability benefit to Canadians that:

  • Are less than 65 years old
  • Have contributed enough to the CPP
  • Are unable to work due to mental or physical disability
  • Have long-term and deadly disability condition

However, your CPP disability benefit will be automatically converted to a CPP retirement pension when you turn 65.

That said, the amount you contributed to the CPP determines the payment you get.

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 contribution to the QPP
  • Have an eligible critical and permanent disability condition

That said, 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 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.

That said, 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 the government disability benefits and buy disability insurance to have enough funds when you’re unable to work due to disability.

If you need additional help buying the right disability insurance, don’t hesitate to communicate in the comment section or contact me.

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 when you wish by contacting your insurer.

How additional questions on disability insurance for self-employed Canadians? Kindly drop them in the comment section.

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