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Disability Insurance for Self-employed Workers

By RBC Insurance • Published February 8, 2024 • 7 Min Read

Before the age of 65, one in four working-age Canadians will experience a disability that prevents them from working for an extended period of time. If you were part of the 25 per cent, would you still be able to pay your bills?

That’s where disability insurance for self-employed workers and disability insurance for business owners comes in. It helps you protect your income, lifestyle, and, in some cases, your business. And it’s especially important for self-employed people who don’t have access to a group plan through their employer.

No one likes to think about the possibility of serious illness or injury. Unfortunately, accidents and illnesses happen, so it’s worthwhile being prepared.

Wondering if disability insurance is right for you? Here’s what you need to know.

Key takeaways

  • Disability insurance is designed to provide an income if you sustain a serious illness or injury. It can allow you and your family to pay your bills and maintain your lifestyle during a difficult period.

  • If you’re self-employed, an individual insurance plan may be an important part of your financial health, as it could provide financial support and other benefits.

  • The cost of disability insurance for self-employed people varies. Your monthly premium will depend on a few factors such as your profession, the type of coverage you want, how much income you want replaced if you can’t work, and more.

  • There are individual disability insurance policies available to suit various needs. Speak to an insurance advisor to see what you’re eligible for and to help you pick out a plan that best fits your needs.

How does disability insurance work if you’re self-employed?

Disability insurance is a form of income protection that you pay for each month. If you ever can’t work because of an illness or an injury, disability insurance can help you cover your monthly expenses.

If someone is working for an employer, they’ll often get coverage through a group plan that has short-term disability (STD) and long-term disability (LTD) insurance. They may also qualify for government help through Employment Insurance (EI) and/or the Canada Pension Plan (CPP).

But what if you’re self-employed, or you’re a business owner? You may still be able to claim benefits if you pay into CPP or EI for self-employed workers. But you might also want to consider an individual disability insurance plan to make sure you can continue to pay your bills in the event you become injured or ill.

Most individual disability insurance plans work something like this:

  1. You pay a fee (called a “premium”) each month.

  2. If you ever have a serious injury or an illness and can’t do your job for an extended period of time, you submit an insurance claim.

  3. If your claim is approved, you receive a monthly payment that covers a percentage of your usual earnings. It’s typically tax free to help you get closer to the amount you usually make each month.

  4. Your plan may also give you access to specialists and extra supports to help you recover more quickly and return to work.

What are common reasons for self-employed workers going on disability insurance?

Surprisingly, just eight per cent of disabilities are caused by injuries due to workplace mishaps or car accidents. These other health issues are more common:

  • Mental health disorders: From clinical depression to substance abuse, issues with mental health are a common reason people need time off work.

  • Cancers: Treatment may make it difficult or impossible to work for a period of time.

  • Cardiovascular diseases: Heart disease, heart attack, and stroke can all require time off for treatment.

  • Musculoskeletal diseases: Arthritis, for example, can cause joint pain, mobility issues, and weakness that turn certain types of employment into a struggle.

Why should self-employed workers consider disability insurance?

You may have a home, a car, or an investment portfolio, but none of those things is your most valuable asset. It’s actually your ability to make a living. If you’re 35 and have an annual income of $72,000, you have the potential to make $3,160,994.63 over the next 30 years, assuming a modest 2.5 per cent salary increase each year. That’s a serious chunk of change.

As a self-employed person, you’re in a unique position, since:

  • You don’t have protection from an employer’s group insurance plan.

  • You may have fixed operating costs, such as monthly rent for an office space, that put extra pressure on your finances.

  • You are responsible for your clients or your customers. If you can’t work for several months, business may go elsewhere, which could have long-term effects on your income.

An individual disability insurance plan may be an important part of your financial well-being if you’re self-employed. Here’s how it can help.

Financial support

When a disability lasts longer than 90 days, it can typically continue for two to three years. Could you pay your bills for that length of time without your usual income? Your options include depleting your savings, relying solely on the earnings of a spouse or partner, taking out a loan (if you qualify), or planning ahead with disability insurance. Purchasing disability insurance can offer some relief in knowing that you’ll have financial support if you become too sick or injured to work.

Access to specialists

Appointments with specialists may help you recover sooner. Some disability insurance plans can get you quick access to physicians (e.g., rheumatologists, oncologists, or psychiatrists), mental-health professionals, and in-person or virtual rehabilitation services.

Return-to-work support

For many people, work isn’t solely about the paycheque. It’s also about meaningful output, contributing to society, and the sense of accomplishment we get from providing for our families.

These are just a few reasons that some people wish to return to work as soon as possible after illness or injury. Some disability insurance policies can help you get back to work faster by providing these supports:

  • Work conditioning (support as you return to work gradually)

  • Work-site modification

  • Transferable skills analysis (if you can’t go back to your old career)

  • Job search assistance

  • Assistive devices (such as wheelchairs, hearing aids, and prostheses)

  • Dependant care (if you needcare for your kids or your parents, so you can go to a rehab program).

How to choose the right disability insurance plan if you’re self-employed

Speak with an insurance advisor or broker and ask plenty of questions. You’ll want to compare a few aspects of each plan you’re offered.

  • Occupations: Does the provider typically cover your type of occupation?

  • Terms and conditions: How does the provider define “disability”?

  • Benefits: What types of benefits are offered with each plan? How long do the benefits last? Does the provider have access to medical professionals and offer return-to-work assistance?

  • Customer service: Does the provider have a team of trained specialists who will help you through the claims process and offer support while you’re on disability?

Is disability insurance worth it for self-employed workers?

Imagine you had to take months or years off work. Would you still be able to afford your mortgage or rent, utilities, car, groceries, school fees, and any of the other expenses you’ve accumulated? Most people would say “no.” If you’re in the same boat, disability insurance could be a useful part of your financial wellness plan.

Can any self-employed worker get disability insurance?

Ultimately, you’ll need to speak with an insurance advisor or broker and answer some pre-qualifying questions about your type of work and how long you’ve been self-employed. There are individual disability insurance policies available to suit various needs, and an advisor can get into specifics.

How much does disability insurance cost for self-employed workers?

Every plan is different. That means the cost of disability insurance for self-employed people will also vary. Your monthly premium will depend on a few factors, including:

  • Your profession

  • The type of coverage you want (there are many options, from what types of injury and illness are covered to how long you would be able to claim benefits)

  • How much income you need replaced if you become sick or injured and can’t work.

To figure out the amount of income you’d need covered, you’ll need to have a close look at your current monthly expenses.

Chat through the details with an insurance advisor or broker to find out the best plan and the amount of coverage to best suit your occupation and your lifestyle.

RBC Disability Insurance

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*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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