Key points
- Disability insurance generally replaces 60% to 85% of income, up to a maximum, while you can't work.
- Short-term cover typically pays for up to six months; long-term cover usually starts when that ends and replaces 60% to 70% of income in most plans.
- Who pays the premium decides the tax: you pay it all, benefits are generally tax-free; your employer pays any part, benefits are generally taxable.
- Government programs are a floor, not a replacement: EI sickness pays up to $729 a week for up to 26 weeks in 2026, and CPP disability pays up to $1,741.20 a month for severe and prolonged disabilities.
- The self-employed have no employer plan, so individual cover and business overhead expense insurance are the usual questions.
Short-term, long-term and critical illness
Three kinds of cover come up most often. They pay for different things and are often confused.
| Cover | What it pays | For how long |
|---|---|---|
| Short-term disability | A share of your income while you are sick or injured, usually through an employer plan or paid sick leave | Typically up to six months |
| Long-term disability | In most plans 60% to 70% of normal income, up to a monthly maximum, after a waiting period | Starts when short-term cover, sick leave or EI sickness end; can run for years, often to age 65, depending on the plan |
| Critical illness | A one-time lump sum if you are diagnosed with a condition the policy lists and survive a set period | Paid once; it doesn't depend on whether you can work |
Disability insurance is about income: it pays while you can't work. Critical illness insurance is about a diagnosis: it pays a set sum whether or not you go back to work, and people often use it for costs that income replacement doesn't cover, such as treatment travel or a partner taking time off. Which conditions count, and when, is set by each policy.
Own occupation or any occupation
The definition of disability in the policy is one of the most important details. Insurers define disability differently, and the definition can vary between plans from the same insurer.
- Own occupation: you are disabled if you can't do the main duties of your own job, even if you could do another one.
- Any occupation: you are disabled only if you can't do any job you are reasonably suited to by education, training or experience.
Many long-term plans pay benefits for up to two years if you can't return to your own job, then continue only if you can't do any job. That change at two years is where many claims end. Partial disability benefits, a requirement to join a rehabilitation program, and whether benefits rise with inflation are other details to read before you rely on a plan.
A tradesperson with a back injury. An electrician hurts their back and can no longer climb or lift, but could work in an office. Under an own-occupation definition, they would generally keep receiving benefits because they can't do their trade. Under an any-occupation definition, benefits could stop once they are judged able to do office work. The facts are illustrative; every claim turns on the policy wording and the medical evidence.
Group cover or individual cover
Many employers offer disability insurance as part of a group benefits plan. It is often the cheapest cover available, but it has limits worth knowing.
| Feature | Group plan through work | Individual policy |
|---|---|---|
| Who owns it | The employer's plan; cover usually ends when you leave the job | You do; it stays with you when you change jobs |
| Tax on benefits | Generally taxable if the employer pays any part of the premium | Generally tax-free if you pay the whole premium with your own money |
| What it covers | Often base salary only, up to a plan maximum; bonuses and commissions may be left out | Set when you apply, based on your income and the insurer's limits |
| Getting cover | Usually simpler medical questions, or none, when you join | Full medical and financial questions |
Offsetting. Benefits from one plan often reduce what another pays. Many long-term plans reduce your benefit as soon as you get CPP disability or other disability income, and with several plans your total usually won't exceed 60% to 85% of your regular pay. Ask how your plan offsets before buying extra cover.
What the government programs pay
Two federal programs sit underneath private cover. They are a floor, not a replacement for a working income. Finvo is not part of the government; the programs decide eligibility and payments.
| Program | What it pays in 2026 | Who it is for |
|---|---|---|
| EI sickness benefits | 55% of insurable earnings, up to $729 a week, for up to 26 weeks | Employees (and self-employed people who opted in) who can't work for medical reasons and have enough insured hours |
| CPP disability benefit | A basic $610.46 a month plus an amount based on your contributions, up to $1,741.20 a month | People under 65 who have contributed enough to the CPP and can't work regularly at any job because of a severe and prolonged disability |
Both are taxable income. Work-related injuries are a separate system: WorkSafeBC in British Columbia and the WCB in Alberta cover injuries and illnesses caused by work, not illness or injuries away from work. Our EI calculator estimates EI benefits, and the government benefits hub explains other programs.
How disability benefits are taxed
The rule turns on who paid the premiums.
- You pay the whole premium yourself, with after-tax money: the benefits are generally tax-free. That can bring your income on disability closer to your take-home pay.
- Your employer pays all or part of the premium: the benefits are generally taxable when you receive them. Under a group wage-loss replacement plan, the premiums you paid yourself can generally be deducted from the taxable benefits you receive.
- EI sickness and CPP disability: taxable income, reported on a T4E and a T4A(P).
This is a common surprise on a tax return: a long-term disability benefit that felt like 70% of salary can be worth noticeably less after tax if the employer paid for the plan. Employers can choose plan designs where employees pay the premium so that benefits are tax-free; our group benefits guide covers the employer side.
Same benefit, different tax. Two employees each receive $3,000 a month from a long-term disability plan. One works where the employer pays the premium: the $3,000 is taxable income. The other works where employees pay the full premium through payroll: the $3,000 is generally tax-free. Round, illustrative numbers; the actual tax depends on the person's other income.
If you are self-employed or own a business
Self-employed people have no employer plan, so a disability usually means income stops while the bills don't. The usual questions are:
- An individual disability policy, based on your net business income. Insurers look at your tax returns, so a low reported income can mean a low benefit.
- EI special benefits for the self-employed, including sickness benefits, if you have registered for the program ahead of time and meet its conditions.
- Business overhead expense insurance, which generally helps pay fixed business costs such as rent, staff wages and utilities for a period while the owner can't work. Clinics, practices and small offices often look at it.
- Who owns and pays for the policy: personal cover paid by your corporation can be a taxable benefit, and overhead expense premiums paid by the business follow their own rules. Settle this with your accountant before the policy is issued.
Where Finvo fits
We look after the tax and payroll side: whether disability benefits will be taxable, how employer-paid premiums and wage-loss replacement plans show up on payroll and T4 slips, how a business owner's policy is recorded in the corporation's books, and how EI and CPP disability benefits are reported on your tax return.
Finvo itself does not sell insurance. If you need insurance advice, we can connect you with a licensed agent from our partner network; the agent advises on products and coverage, and we cover the tax side. Insurance and other specialists are joining Finvo as contractors, so a group of consultants can work on your file together and you don't have to go from place to place. How it works.
This guide is general information, checked against the Financial Consumer Agency of Canada, Service Canada and the CRA on 30 Oct 2026. Every policy and program has its own rules; it isn't insurance, tax or legal advice for your situation.