Being your own boss comes with many advantages, but it can also bring financial uncertainty. What happens when you can’t work because of a disability? What if that disability lasts for months or even years? How will you support yourself and your family or keep your business afloat?
That’s where disability insurance for self-employed individuals in Canada comes into play. In this post, we’ll walk you through the different types of disability insurance available from various companies.
We’ll help you find the best disability insurance options for self-employed Canadians and show you how to safeguard your income with the right policy.
Long-Term Disability Insurance For Self-Employed
Disability insurance is a safety net that provides financial support when you cannot work due to a disability. Specifically tailored for self-employed Canadians, Long-Term Disability insurance (LTD) ensures you receive disability benefits for at least two years.
With Long-Term Disability insurance, you receive monthly payments for a duration of two years or more if you’re unable to work due to a disability. Much like other insurance types, such as life or critical illness insurance, you’ll need to pay a monthly premium and other associated fees in exchange for this crucial disability coverage.
Typically, Long-Term Disability insurance replaces approximately 60% to 70% of your regular income and begins after any Federal Employment Insurance Benefits or paid sick leave have ended.
For self-employed Canadians, this insurance provides essential financial stability, regardless of your ability to work. It allows you to choose a benefit period extending beyond two years, and in some cases, it continues until you reach the age of 65.
The insurance company disburses the funds directly into your bank account, allowing you to use the benefit for various purposes without restrictions. You can rely on it as an income replacement to cover household expenses, mortgage payments, groceries, phone bills, utilities, etc.
What Does a Self-Employed Disability Insurance Cover?
Self-employed disability insurance covers 60% to 85% of your income if you become temporarily or permanently disabled and can no longer work.
It’s important to note that these disability insurance payments are typically made monthly. This means you’ll receive regular monthly payouts, allowing you to use the funds without worrying about taxes for both personal and business expenses.
Benefits of Disability Insurance for Self-Employed
Let’s explore some of the key advantages you can enjoy when you purchase disability insurance as a self-employed individual:
1. Income Replacement
Income replacement stands as one of the primary motivations for having disability insurance. When you invest in disability insurance, you pay a monthly premium. In return, if you ever find yourself unable to work due to a disability, you receive a monthly payment.
This means you can rest easy, knowing that you won’t have to make sacrifices that impact your current lifestyle or contemplate closing your business due to a disabling condition. Disability insurance acts as a financial safety net, allowing you to maintain your quality of life and business operations even in challenging times.
2. Constant Cash Flow
If you’ve been self-employed for some time, you’ve likely picked up on a few lessons that may not have been immediately apparent when you started. One of the most significant lessons is understanding the vital role of maintaining a steady cash flow.
When you’re self-employed, you can’t afford to fall ill or get injured if you haven’t set aside sufficient funds to support yourself and your family. Taking time off from work can also be financially challenging.
This is where disability insurance becomes a crucial tool to help you stay in control of your business, even when a disability prevents you from working.
3. Retirement Plan
When you experience a disability, it can disrupt your retirement savings, making it challenging to set aside money for your golden years. This is where disability insurance becomes a wise choice.
It allows you to continue earning income even when you cannot work due to a disability, ensuring that your retirement plans stay on track.
Long-Term Disability Insurance Vs Short-Term Disability Insurance
When it comes to self-employed disability insurance, the top choice is often long-term disability insurance policies. Although they come with a higher price tag than short-term plans, they offer significantly more extensive coverage. However, there are crucial factors to weigh when making your disability insurance decision, with your emergency fund being a critical consideration.
If you’ve already established an emergency fund capable of covering your expenses for three or more years in the event of a disability preventing you from working, then short-term disability insurance may be a viable option to explore.
Conversely, if you lack an emergency fund that can provide for you and your family during periods of work incapacity, long-term disability insurance might be your best bet. Ultimately, the most suitable disability insurance type is the one that aligns with your current financial circumstances.
How Much Self-Employed Disability Insurance Do You Need?
The goal of your disability insurance is to provide sufficient support for you and your family’s comfort during periods when you can’t work. To determine the right coverage, it’s essential to calculate all your monthly recurring expenses, including bills, groceries, transportation, mortgage, and other financial commitments.
Next, subtract any income you expect to receive from alternative sources during your disability, such as rental income or investments. The disability insurance amount you require should be the difference between your monthly expenses and this expected income. This way, you can ensure your coverage adequately meets your needs.
How Much Does Self-Employed Disability Insurance Cost?
The cost of self-employed disability insurance typically falls within the range of 1% to 3% of your annual income. Several factors influence this cost, including your individual circumstances, such as your health, age, and occupation, and the coverage and duration of your disability insurance policy.
One key point to remember is that purchasing a disability insurance policy earlier can be a money-saving strategy. The sooner you secure coverage, the more affordable it tends to be. However, if you’re concerned about staying within your budget, there’s a practical way to manage the costs. You can minimise your insurance expenses by combining your policy with the growth of an emergency fund.
As your emergency fund grows, you’ll find yourself in a more secure financial position. This will allow you to rely on both your well-funded emergency fund and your disability insurance in the event of a disability that prevents you from working. It’s a smart approach to ensure financial stability and peace of mind.
Finding the Best Disability Insurance for Self-employed Canadians
When it comes to securing disability insurance for self-employed individuals in Canada, turning to an online insurance broker is your best bet. These online brokers offer cost-effective options for Canadians seeking insurance coverage tailored to self-employment.
However, with the growing number of online brokers in Canada, selecting the right one is crucial. Among the most reputable online insurance brokers in Canada, Bounc3 stands out. This broker provides Canadians with personalised guidance and affordable self-employed disability insurance options.
Furthermore, Bounc3 employs cutting-edge technology to streamline the process of purchasing insurance online, collaborating with top insurance carriers in Canada to ensure a hassle-free experience.
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
If you’re a Canadian, you might be eligible for extra disability benefits within Canada’s system, such as the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP). Administered by the Canada Revenue Agency, these benefits support individuals who have contributed to them but cannot work due to disability.
Canada Pension Plan (CPP) Disability Benefits
The CPP offers a monthly disability benefit for Canadians under 65 years old who have made sufficient contributions but cannot work due to physical or mental disabilities, including severe and life-threatening conditions. However, it’s important to note that your CPP disability benefit will automatically transform into a CPP retirement pension when you reach 65. The amount you receive is determined by the contributions you’ve made.
Learn more about the CPP benefits amount and payment dates.
Quebec Pension Plan (QPP) Disability Benefits
The Quebec Pension Plan (QPP) disability benefits are specifically designed for disabled residents of Quebec and their dependent children. To qualify for QPP disability benefits, you must meet certain criteria: you should be under 65 years old, have made sufficient contributions to the QPP, and have a recognised critical and permanent disability condition.
An eligible disability is one acknowledged by Retraite Québec. To qualify, your disability must be severe enough to completely prevent you from working, and it must be permanent, with no chance of recovery. However, if you’re between 60 and 65 and unable to work for health reasons, you may still be eligible for a disability pension, provided you’ve contributed to the CPP for at least four of the six preceding years in your contribution period.
Furthermore, if you’re under 65 years old and unable to work full-time, you may receive an additional disability amount as a beneficiary of the QPP retirement pension.
Final Thoughts on Disability Insurance for Self-Employed
Protecting your income and financial well-being should always be a top priority. With the right disability insurance policy, you can gain peace of mind, knowing that you and your business are safeguarded in case the unexpected happens.
Don’t wait until it’s too late; take action now to secure your financial future. Explore your options, compare policies, and find the disability insurance plan that suits your needs. Your journey to financial security as a self-employed individual starts today.
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?
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.
