If you pay the full premium yourself, benefits are generally tax-free. If your employer pays all or part of it, benefits are generally taxable. Your accountant can confirm your situation.
Disability Insurance
Disability Insurance, Explained Clearly
A monthly income if illness or injury keeps you from working. Here is what it replaces, how the definitions work, and what to check if you're self-employed.
What It Is
What does disability insurance replace?
Disability insurance replaces part of your income if an illness or injury stops you from working. It generally covers 60% to 85% of your income, up to a maximum, and pays monthly after a waiting period.
What counts as disabled, and for how long you are paid, depends on the contract. Two policies with the same monthly benefit can behave very differently, so the definitions below matter as much as the price.
It is one of three kinds of protection, alongside life insurance and critical illness insurance.
At a glance
- Monthly incomePart of your earnings, up to a maximum
- Waiting periodCommonly 30 to 180 days
- Benefit periodCommonly two years, five years or to 65
- Generally tax-free if you payWhen you pay the full premium yourself
The Definitions
What is the difference between own occupation and any occupation?
Own occupation pays if you can't do your regular job, even if you could do other work. Any occupation pays only if you can't do any reasonable job.
Own occupation
The test looks at the important duties of your regular occupation. It is the easier test to meet.
Any occupation
The test looks at any reasonable occupation, as the policy defines it. Benefits can stop if you could do other work.
The switch
Many plans use own occupation for the first 24 or 36 months, then any occupation. Some individual policies let you add a rider that keeps the own occupation test for the whole benefit period.
Waiting Periods
How does the waiting period work?
It's the time between becoming disabled and your first benefit. You choose it when you apply, commonly 30 to 180 days, with longer options of one or two years on some policies.
A longer wait lowers the premium, so match it to the sick pay and savings you can rely on.
Benefit Periods
How does the benefit period work?
It's the longest you can be paid for one disability. Common choices are two years, five years or to age 65, and some policies run to 70.
Choosing one is a trade-off between the premium and how long a disability you could absorb on your own.
How It Compares
How is it different from critical illness, group coverage and EI sickness benefits?
Disability insurance pays monthly income while you qualify, up to the benefit period. Critical illness pays one lump sum on diagnosis. EI sickness benefits are short and capped.
| Your own disability policy | Group long-term disability | EI sickness (2026) | Critical illness | |
|---|---|---|---|---|
| Pays when | You can't work, as the policy defines it | You can't work, as the plan defines it | A medical certificate shows you can't work | You're diagnosed with a covered condition and survive the waiting period |
| Pays | A monthly income | Often 60% to 70% of income, monthly | 55% of insurable earnings, up to $729 a week | One lump sum |
| How long | The benefit period you chose | Set by the plan, usually after short-term benefits end | Up to 26 weeks | One payment |
| If you change jobs | Stays with you | Ends | Depends on EI rules | Stays with you |
| Taxable? | Generally not, if you paid the full premium | Generally yes, if your employer paid any of it | Yes | Generally not, on a policy you own personally |
Benefits from one plan may reduce benefits from another, so check how yours fit together. Many people need more than one. If you run a business, group benefits can include disability coverage for your team.
Self-Employed and Business Owners
What should self-employed people consider?
With no group plan or sick leave behind you, your own policy may be your main protection, so check the details.
EI is opt-in
You can register for EI special benefits, including sickness, but your agreement must be active for 12 months first. For 2026 claims, you also need $9,254 in net self-employed earnings from 2025.
Owners of corporations
Work for a corporation where you control more than 40% of the voting shares isn't insurable employment under the EI Act. The opt-in program is open to those owners.
How you pay yourself
Insurers base the benefit on income. For self-employed people, that generally means your share of business income after expenses.
Business overhead
A separate overhead expense policy can reimburse fixed costs such as rent, utilities and staff pay while you're totally disabled.
Who pays the premium
If your corporation pays, the tax treatment of the premium and the benefit can change. Your accountant confirms the setup first. See also key person and buy-sell coverage.
Is It Right for You?
Who disability insurance fits
It suits anyone who relies on their ability to work more than on savings or investments.
- No group planNothing replaces your pay after sick leave and EI
- Self-employed people and ownersYour income stops when you stop
- A gap in your group planA low maximum, or a switch to any occupation
When it may not fit
- Your income doesn't depend on workingInvestments or a pension would continue
- Group coverage already does the jobCheck with your employer first
- Your job or health historyEither can mean higher premiums, exclusions, a longer wait or a shorter benefit period
Common Questions
Questions about disability insurance
Disability insurance generally replaces 60% to 85% of your income, up to a maximum. Most long-term plans replace 60% to 70%.
Maybe. Check the monthly amount, the definition of disability and when the test changes. Group coverage ends when you leave the job, while a policy you own stays in force.
No. Disability insurance replaces part of your income if you can't work. Critical illness pays a lump sum on diagnosis, even if you keep working. Many people have both.
Yes. Individual plans are available to self-employed people, though eligibility can depend on your occupation, income and hours worked.
Your age, health, occupation, the monthly benefit, the waiting period and the benefit period. Riskier occupations generally cost more.
We work with clients across Burlington, Oakville, Milton, Mississauga and Hamilton. Many first conversations start with a call to 289.339.8100.
Related Guides
Strategies that often work together
Critical Illness Insurance
A lump sum on diagnosis of a covered serious illness, and how it differs from disability.
Read the guideLife Insurance
Term, permanent and critical illness coverage, what drives the price, and options after 60.
Read the guideGroup Benefits
Group health, dental and pension plans for small and growing businesses.
Read the guideThis information is general in nature and is not tax, legal, accounting, insurance or investment advice. It is based on current Canadian tax legislation, which can change. Any strategy should be designed and reviewed with your accountant and legal advisors based on your circumstances. Definitions of disability, waiting periods, benefit periods and exclusions vary by insurer and policy; the policy contract governs.
Disability insurance in Burlington, Oakville, Milton, Mississauga and Hamilton
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