Suppose Bob is a 45-year-old incorporated dentist. His association group plan covers a fraction of what he earns and defines disability loosely. If he could no longer practise dentistry but could still teach, he is not sure the plan would pay. And nobody has told him whether his corporation should be paying the premium.
How it works
An own occupation policy pays if you cannot perform the duties of your specific occupation, even if you could do other work. That is the definition professionals should insist on. Income replacement is normally owned and paid personally, so the benefit arrives tax-free. Key person disability is owned by the corporation and pays the business a monthly amount to cover a replacement while the key person recovers, the disability counterpart to key person life insurance. Disability buy-out funds the purchase of a disabled partner's shares under a shareholders' agreement, a trigger that life insurance does not cover.
Who pays the premium is a tax decision. A personally paid premium is not deductible and the benefit is tax-free. When the corporation pays for coverage that benefits the owner personally, the premium is generally a taxable benefit or the benefits themselves become taxable, and the coverage has to be sized larger to net the same income. We run that comparison with your accountant. Disability coverage also pairs naturally with corporate-owned critical illness insurance, which pays a lump sum on diagnosis rather than a monthly income.
This is likely relevant if
- Your income depends on your ability to do a specific, skilled job.
- Your only coverage is a group or association plan that caps well below your earnings.
- Your business would struggle to pay you and a replacement at the same time.
- Your shareholders' agreement has a disability clause with no funding behind it.
The full picture for doctors, dentists, and other incorporated professionals is on life insurance for incorporated professionals. Our living benefits page covers the product range, and our process shows how an engagement runs.
Talk to us before you rely on the group plan
Doug Leyland and Jordan Matters are Chartered Professional Accountants, CPA, CA, and Private Client Estate and Succession Advisors. We read the definition in your existing plan, show the gap against your real income in plain numbers, and structure the ownership so the benefit arrives the way you expect.
Prefer to go deeper first? Request the full guide and we will send you our detailed briefing on disability coverage for owners.
Common questions
What does own occupation disability insurance mean?
The policy pays if you cannot perform the substantial duties of your own occupation, even if you are able to work in another field. Weaker definitions pay only if you cannot do any job you are reasonably suited for, which is a much harder test for a skilled professional to meet.
Should my corporation pay my disability insurance premiums?
Usually not for personal income replacement, because a corporate-paid premium generally makes the benefit taxable or creates a taxable benefit to you. Corporate ownership does make sense for key person and buy-out coverage, where the corporation is the one being protected.
Is my association or group disability plan enough?
Often not. Group plans commonly cap the monthly benefit below a high earner's income, may not use an own occupation definition, and can be changed or cancelled by the plan sponsor. An individual policy is owned by you, portable, and written to your occupation.
What is disability buy-out insurance?
A policy owned by the corporation or the other shareholders that pays a lump sum after a long-term disability, so the disabled partner's shares can be bought at the agreed price under the shareholders' agreement. It is the funding for a trigger that life insurance leaves uncovered.
