Canada Life Disability Insurance's Achilles Heel

Residual Benefits is a built-in feature for all disability plans.  It provides a partial benefit as the physician recovers from a disability and return to work on a modified (reduced) schedule.  Most disability claims begin with full benefits payout while the physician is unable to work in any capacity.  As she recovers, she would ease back to work on a modified schedule.  At that point, the disability benefit amount will be calculated as follows:

Disability Monthly Benefit in force x ((Income prior to disability – Income earned from modified schedule) /  Income prior to disability)

For example if a physician carrying $12,000 of monthly benefits, making $300,000 prior to disability now makes $100,000 while recovering, his disability benefit would be $8,000 based on the above formula.

$12,000 x (($300k - $100k) / $300k) = $8,000

All insurance company use this formula to calculate the Residual Benefit amount.  However, they all have different ways to evaluate your “Income prior to disability” which will ultimately lead to a different benefit amount.

RBC would take the highest average income over any 6 months in the past 24 months or highest average in the past 2 years out of the 3 years.  With Canada Life however, they would only take the average of the last year’s income.  If your 12 month’s income prior to a disability claim is minimal or none (e.g. maternity leave), you will receive still a reasonable residual benefits if you are with RBC but receive none if you are with Canada Life. 

We would use this example to illustrate the difference in benefit payout.

Monthly Disability Benefit in force: $12,000
2012 income:  $300,000
2013 income:  $250,000
2014 income:  $140,000 (<- worked less due to maternity leave or vacations etc.)
Income while recovering: $100,000

RBC’s residual benefits would be calculated as: (($275,000 - $50,000) / $275,000) x $12,000 = $7,636 per month

Canada Life’s residual benefits would be calculated as: (($140,000 - $100,000) / $140,000) x $12,000 = $3,428 per month

Until Canada Life modifies their residual disability definition, we would be hesitant to recommend it to any physicians.