Can I Get Disability Insurance If I Pay Myself in Dividends?
Usually yes, but the amount you can get depends on how much income you can prove, and dividends are harder to prove than a salary. Each insurer has its own rules for counting dividends from your own company. Owners who take little or no salary, or whose company is only a year or two old, are the ones most likely to be offered less cover than they expected.
Why does it matter how I pay myself?
Disability insurance replaces part of your income if illness or injury stops you working. The insurer won't cover more income than you actually earn, so before it approves a monthly benefit it looks at your recent tax returns. For an employee that is simple: the T4 shows the salary. For an incorporated owner, income may arrive as salary, dividends, or a mix that changes every year with what your accountant recommends at year-end.
A low-salary, high-dividend year can look like a pay cut on paper even when the business is doing well. That is the year an underwriter may use.
How do insurers count dividends?
There is no single rule. In general:
- Some insurers count salary and dividends together, usually averaged over the last two years, and ask for personal tax returns plus the company's financial statements.
- Some count dividends only if they are steady and look like pay for your work, rather than a one-time payout of savings built up in the company.
- Some look mainly at salary, which can leave a dividend-only owner with a small benefit.
- Some will look at your share of the company's earnings for owners with a history, which helps when profit was kept in the company on purpose.
Because the rules differ so much, the same owner can be offered noticeably different amounts by different insurers. Comparing them is a large part of the job.
What if my company is new?
With only one or two years of returns, insurers have little to go on. Some offer smaller amounts for new owners, and some have programs for professionals such as physicians or dentists that rely less on income history. If you are about to incorporate, or have just changed how you pay yourself, it can be worth applying before your income on paper drops. Many individual policies keep the approved amount even if your income on paper drops later, but some pay less if your income has fallen by the time you claim, so read that part of the contract.
Who should pay the premium, me or the company?
Who pays changes how the benefit is taxed. In general, if you pay the premium personally from money you have already paid tax on, the monthly benefit is not taxed when you claim. If the company pays it as an employee benefit and it isn't added to your income, the benefit is usually taxable when you receive it, which means a smaller cheque when you most need it. Your accountant should confirm which way fits your situation. Our article on whether your corporation should pay for your life insurance covers the same question for life cover.
Who pays the rent while I'm off?
Personal disability cover pays you. It doesn't pay the business's fixed costs, such as rent, utilities, staff wages and equipment leases, which keep running while you are away. That is what business overhead expense insurance is for. It is owned and paid for by the company, usually pays for a set period of one to two years, and is meant to keep the doors open while you recover or decide what to do. The premiums are generally deductible to the business and the benefits are taxable to it.
For a one-owner practice or trade, overhead cover is sometimes more urgent than a larger personal benefit, because a closed business is hard to restart.
Is critical illness insurance an easier option?
It works differently. Critical illness insurance pays a single lump sum if you are diagnosed with a covered condition, such as a heart attack, stroke or cancer that meets the policy definition, and survive a short waiting period, often 30 days. It doesn't depend on whether you can work, and it isn't tied to your income in the same way, so proving dividend income matters less. It also doesn't replace income month after month, so for most owners it sits alongside disability cover rather than replacing it. Read more on our critical illness and disability insurance page.
What should I bring to a review?
- Your last two personal tax returns and notices of assessment.
- Your company's last two years of financial statements.
- Any group plan booklet, if you have benefits through an association or a previous employer.
- A rough list of the business's fixed monthly costs.
- Any coverage you already have, including insurance your lender added to a loan.
Please don't send health details or documents through our website form. We ask for what is needed once you decide to apply, through the insurer's secure process.
How does WealthPillar help?
We look at how you are paid now and how you plan to be paid, then compare how several insurers would treat your income. You get the options, the monthly benefit each would offer, and the cost in writing, so your accountant can check the tax side before you decide. You speak with Chirag Kalra, a licensed life insurance advisor in Ontario, at our office at 181 Queen Street East in Brampton or by video call. WealthPillar is paid by insurer commission when a policy is placed. Coverage is subject to underwriting and insurer approval. We don't give tax or legal advice.
Check how insurers would count your income
General education only; not individualized insurance, financial, tax or legal advice, or a recommendation to buy, replace or cancel a policy. Tax results depend on your facts and current law.
