Are Canadian Disability Insurance Premiums Tax-Deductible?

Taxes are imposed on retail transactions, estates, trusts, investments, services, and utilities in Canada. Consumers just cannot seem to escape taxation no matter how hard they try. When it comes to taxes, Canadian consumers cannot legally get around them. Fortunately, you can prepare for future taxation by working hard and saving more. But, what about when the unexpected happens like a workplace injury or critical illness? These are situations are very unfortunate for everyone involved, including the injured worker, his/her family, and the employer. But, again, you can be fully prepared for the inevitable if you play it smart.


How To Prepare?

To prepare for the inevitable – workplace injuries and fatalities – part- and full-time workers in Canada need to obtain disability insurance. This form of insurance coverage is generally offered by an employer to its employees. Disability insurance is exactly as its title entails. It covers workers who are injured in the workplace. There are two types of disability insurance – short- and long-term. While they appear to be the same, they do some a few differences. 

Short-term disability offered by employers will cover between one to three years or longer. Long-term disability, on the other hand, covers for an extended period of about 10 years, depending on the plan. All disability plans cover specific periods of time, which is why they have been deemed short- and long-term.

Workers are responsible for all the household expenses, such as utilities, mortgage, insurance, car payments, and personal loans, groceries, and other necessities. Regardless of the number of people bringing money into the household, an injury, illness, or disability can be financially, physically, and mentally devastating for everyone.

Being prepared means you are covered under a good company disability policy. But, is this enough to pay the injured worker’s expenses? If you have an existing disability policy, you need to inspect it carefully. What you are looking for is the percentage and length of coverage (this is explained more in-depth further into the article).


Disability Coverage – Make It Your Mission!

Every Canadian worker needs to have a mission when it comes to their insurance coverage. This is not just including disability insurance but other critical insurance policies, such as Critical Illness (CI).

When employers offer their employees the opportunity to sign up for disability insurance, they will offer two types, which were mentioned briefly above. Short- and long-term disability (LTD) generally go hand-in-hand. What this means is they are purchased as two separate policies but are combined together in the event of a workplace injury.

When an employee who is covered under both short- and long-term disability policies is injured on the job, the first he/she will do is file a claim with their employer’s insurer. In turn, the insurer initiates an investigation into the claim to determine if it is legit. Once legitimacy is determined, the insurer will begin processing the claim.

It can take anywhere between one to weeks after your initial disability insurance claim was filed to start receiving payments. 


Do Self-Employed Workers Qualify For Disability Insurance?

Self-employed workers are not employed by government entities, non-profits, or companies. They have no one to watch over them. While this has many benefits, it puts all of the burdens on the self-employed worker. They are responsible for obtaining their own disability insurance coverage. This is where ProfessionalsCoverage comes into play. ProfessionalsCoverage specializes in private disability insurance. 

Whether this is your first or secondary disability policy, these experts can help you customize an insurance plan that will protect you in the event of a critical illness or workplace injury. Full-time workers and self-employed can complete the online quote to obtain an estimated premium. 


What Are The Caps For Private Disability Insurance?

Like most insurance policies, private disability coverage is capped. Coverage options go up to $1,500 per month. Premiums start at $120 per year or $10 per month. Every part- and full-time Canadian worker deserves to be covered by a sufficient disability policy. 

Disability insurance, both private and through the employer, have a deadline. As mentioned above, the short-term policy offers short-term coverage while the long-term policy offers longer coverage. If you feel a long-term policy is more suitable for your industry and your employer does not offer disability insurance, you still qualify for coverage. 

Private disability insurance premiums can be paid monthly, bi-annually, or annually. 


Can You Deduct Long-Term Disability Insurance Premiums?

Owning insurance is very helpful. However, you may not be able to use insurance to decrease your tax burden. If you have a group disability insurance plan from work or you’ve obtained a personal policy, you should be covered for short and long-term disability. Just remember that the benefits are only going to last so long. Most plans have a specific duration. One that period has passed, you will no longer receive benefits. Your policy may be able to cover disabilities caused by injury or illness. Many policies cover both.

Furthermore, short and long-term disability coverages are parts of any group disability insurance policy. While short-term disability will likely provide benefits for several months, long-term disability lasts much longer. Once you’ve exhausted the short-term benefits, you will be able to use long-term disability benefits for several years.

Just remember that personal policies are different. Before coverage will activate, you’ll have to let the waiting period elapse. That may continue until you’ve reached a certain age or it could be a certain number of years. Long-term disability insurance premiums are generally not tax-deductible.


Is It Possible To Deduct Disability Insurance Premiums Like A Business Expense?

Taxes can be burdensome for all Canadians. If you have to pay expensive taxes, you’re going to hate seeing the end of the year come around. Nevertheless, there are numerous ways to minimize the costs and you’ll want to take advantage of these tax savings. You may believe that you’ll be able to save on your taxes by deducting your disability insurance premiums like a business expense but this may not be possible. In most situations, you will not be able to use your disability insurance premiums as a business expense to decrease your taxes.

There are some exceptions to the rule but most people will not meet those qualifications. While some premiums are deductible, insurance premiums are not. The only exception is for self-employed individuals and it has to do with PHSP or private health services plans. Sometimes, medical and dental insurance premiums or private health insurance service plans will be fully or partially deductible.

If you’re able to deduct these expenses, you’ll be able to deduct the premiums for yourself, your spouse, and children as long they live in the same household. Below, you’ll learn more about the situations that will allow you to deduct premiums.

Group disability insurance premiums that are being paid by a company for its employees can be deducted as a business expense.

Health insurance plan premiums can be deducted by self-employed individuals as well as their dependents. Just remember that this does not include disability insurance premiums.

Getting Help Summarizing This Article

Disability insurance can be very beneficial. Many will agree that disability insurance is pertinent to all Canadians. Whether you’re a long-term business owner or you work for your parents, you’re at risk of getting injured. Depending on the severity of that injury, you may be forced to stay home from work for a long time. Without disability insurance, you’re going to struggle to overcome this hurdle. With insurance, you can rest assured knowing you’ll receive the assistance you need to survive.

Unfortunately, disability insurance premiums cannot be deducted from your personal income thanks to the Tax Act. So, you should not try to use your insurance costs to minimize your tax expenses. May have tried to use this to their benefit but the CRA had repeatedly changed the rules to prevent Canadians from creating artificial tax benefits.

Nevertheless, disability and other life insurance products are essential for self-employed individuals and small business owners. This insurance is indeed a staple of an effective financial security plan. While the premiums are not tax-deductible, the benefits provided will prove to be well worth it. The payout from this type of insurance is tax-free as long as you’ve been paying the full premium.

Many Canadians do not have access to group disability plans meaning they’ll need to purchase disability insurance for themselves. This includes the self-employed since they do not have a conventional employer. Getting insured is highly recommended. Doing so can help protect your financial future, your family, and ensure you’re able to continue paying your mortgage.

Remember to work with a tax professional so you can learn more about the tax deductions you can use to lower your tax burden.


Getting Help

The Canadian disability insurance market can be confusing and scary. With that being said, you should not attempt to travel this road alone. If you do, you may make the wrong decisions for yourself and your family. Canadians who need assistance should contact the experts at ProfessionalsCoverage. Representatives are standing by to help consumers find the answers they need.


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