How are Individual and Group Disability Policies Taxed?

Posted on April 2, 2009 and updated January 23, 2019 in Life Insurance Canada News 2 min read

man-and-woman-with-documentsWhether disability income benefits are taxable to the insured will depend on what type of policy the insured has and whether the premiums were paid with pre-tax or after-tax dollars.

With individual disability insurance policy the rules surrounding the taxation of benefits are generally very simple. If the insured pays the premiums with after-tax dollars, the benefits you receive are tax free. If the premium is deducted by the insured than any disability proceeds would be taxable.

Disability insurance purchased through an “association type plan” is called often categorized as a group policy and share certain characteristics of a group plan. However, in terms of taxability of the policy they are treated the same as individual disability policies.

With Employer-sponsored disability plan the taxation of the benefits gets a little more complicated. If the employer pays the premium and the insured does not receive a taxable benefit than any disability benefits received will be taxable. However if the employer pays the premium and the insured receives a taxable benefit for the amount of the premium any disability benefits received will be tax free.

You can get a free on-line quote at Disability Insurance or contact me 1.866.899.4849 and we can design a plan for your particular situation.

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