3 Government Disability Plans That May Not Protect You Like You Think
Over the years, many people have told me that they felt income protection – “disability insurance” – wasn’t a priority. They believed that they were already covered by Employment Insurance, by “worker’s compensation” though the Workplace Safety Insurance Board or the Canada Pension Plan’s disability plan.
It’s a fair assumption.
Before we look at these various plans, let’s understand how much income coverage a person may need. The table below gives us a rough idea. For example, a 35 year old earning $48,000 a year will likely accumulate $2,283,260 by working until age 65.
Of course, if you’re not able to work due to a disability at 35 you likely won’t be off work for all of your working years until age 65. However, the chart below shows that, on average, this 35 year old is off work for 2.8 years. That’s almost three years without $48,000 in annual earnings.
With that in mind, let’s look into the three common income protection plans for workers who experience a workplace disability.
Canada Pension Plan (CPP) disability plan
The CPP disability plan has a maximum monthly benefit of approximately $1,300 per month. 1 This benefit is taxable. So, the government is giving with one hand but appears to be taking back with the other!
But you’re thinking, It’s ok, if I’m off for a couple of months and that money will still help a little. True, but the plan has a 120-day waiting period meaning that for the first four months you would be without this income. 1
In order to collect these disability payments, the disability must be severe and prolonged. “Severe means that you have a mental or physical disability that regularly stops you from doing any type of substantially gainful work. Prolonged means that your disability is long-term and of indefinite duration or is likely to result in death.”1
In a nutshell, if you can never go back to work again, you would get $1,300 per month. Would this be enough?
Employment Insurance (EI)
Employment Insurance is helpful but it will only cover you for up to a maximum of 15 weeks. That’s it! So, if you are unable to work for any time longer than that, you won’t have this benefit. The maximum monthly amount you can collect is 55% of your average insurable weekly earnings to a maximum of $547 per week. 2 This amount is more than CPP’s benefit, but again, it will run out after only 15 weeks of coverage.
And, as you probably guessed, yes, since this is a government payment, it is taxable!
Worker’s Compensation from the Workplace Safety Insurance Board (WSIB)
The most common coverage workers have told me they have is “worker’s compensation.” This is the main reason that they use for justifying that they don’t need any extra income protection. Although this plan has excellent benefits, such as being non-taxable, and personal maximums are based on your income (around 80% or so), there are some drawbacks.
The most important aspect of the worker’s compensation plan: It only covers you if you are hurt on the job. It does not cover you if you are hurt in a car accident, if you are hurt on the ski slopes, if you are hurt playing sports, if you… well, you get the point!
Furthermore, “worker’s compensation” covers you only if you are injured, not if you are ill unless that illness is directly related to your job! Now, imagine if you are unable to work due to a heart attack or a cancer diagnosis, you would not be covered.3
Canada has some wonderful financial benefits for those who cannot work, but more often than not, injured or ill workers wish they had more. For this reason, it is valuable to talk to a licensed Life and Health Insurance Advisor to help you understand your options in order to protect your income and all those who rely on it.
Director, Sales and Business Development
Life and Health Insurance Advisor
Desjardins Financial Security Independent Network
416-695-1433 ext. 232
155 Rexdale Blvd., Suite 406
Etobicoke ON, M9W 5Z8
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