What are the Best Disability Insurance Contracts in Canada for Professionals?

When selecting a disability insurance policy as a professional, it’s important to understand the key contract provisions that set the best policies apart. One of the most significant features is Non-Cancellable coverage, meaning that while you can cancel at any time without penalty, the insurance carrier cannot cancel, change contract wording, increase premiums, or reduce benefits as long as premiums are paid.

Currently, the best contracts in the market are:

• Canada Life (with Professional Riders)
• RBC Professional Series

*Previously, Manulife Proguard was an excellent option, but it was discontinued in September 2022. If you already have this coverage, it is likely worth keeping as it remains guaranteed.

These two leading policies—RBC and Canada Life—offer similar contractual protections, but key differences may determine which one is best for you.

Comparing Class 4A (Doctors, Lawyers, Accountants, Engineers, IT Professionals, Executives, etc.)

Occupation Class Upgrade Guidelines

Higher occupation classifications result in lower premiums. Some professions may not initially qualify for 4A status, but can be upgraded over time based on income and experience.

• RBC: Easier to qualify for 4A class with $75K income over the past two years and three years of experience.
• Canada Life: Requires $75K income and five years of experience or $120K income for four years. If taking Return of Premium (ROP), upgrades may be easier.
• *RBC allows only one class upgrade (e.g., 2A to 3A), while Canada Life may allow a two-class upgrade (e.g., 2A to 4A) if ROP is included.

Why Your Occupation Classification Matters for Disability Insurance

Certain occupations are viewed more favorably by insurers, which can directly impact the quality and cost of disability coverage. Over time, some professions have seen downgrades in their classifications due to claim experience. For example:

• General Dentists: Historically, Manulife offered dentists a 4A classification (the highest rating for professionals), but due to high claims, RBC now classifies them as 3A (not upgradable), while Canada Life recently downgraded them to 2A (not upgradable).
• Tip: If you’re a dentist with an older 4A policy, it’s worth keeping. Higher classifications often mean better coverage terms at a lower cost.

Since occupation classifications vary between insurers, it’s essential to go with the carrier that views your profession most favorably. What’s available today might not be an option in the future, so locking in the best classification early can be a smart move.

One important thing to remember: If you ever change careers, your disability policy stays with you. The definition of disability will be based on your occupation at the time of claim, not when you originally purchased the policy. This means that even if you transition into a riskier profession, your coverage remains unchanged.

Discounts & Cost Savings

RBC Offers a 20% Discount for Established Professionals

Eligible professions include:

• Accountants, Actuaries, Architects
• Medical Specialists (excluding GPs, family physicians, emergency medicine)
• Engineers, Executives (4A), Lawyers, Quebec Notaries
• Optometrists, Pharmacists, Judges
• IT Professionals (Executives, Consultants, Developers, Analysts, Programmers)
• Dental Specialists (Orthodontists, Endodontists, Periodontists, Oral Surgeons, Prosthodontists, etc.)

Taxable Group LTD: RBC vs. Canada Life

When coordinating Group Long-Term Disability (LTD) with Individual Disability Insurance, RBC offers a more favorable approach through Combo Limits, allowing for a higher individual payout. Both RBC and Canada Life provide a 10% discount when combining Group and Individual coverage.

For a deeper dive into why you shouldn’t rely solely on Group LTD—and the advantages of individual coverage, you can read: Group Long Term Disability (LTD) Insurance vs Individual Insurance: Making the Right Choice for Your Needs – SecurePlan Insurance Solutions

How Tax-Free and Taxable Disability Benefits Work

If you have taxable Group LTD benefits and a tax-free Individual Disability policy, the carrier must convert the taxable benefit to a tax-free equivalent when calculating payouts. Let’s look at an example:

Case Study: A High-Income Earner with Taxable Group LTD

• Income: $250,000 per year
• Individual Disability Coverage: $10,000 per month (tax-free)
• Group LTD Coverage: $6,000 per month (taxable)

This person is concerned about the “Any Occupation” clause after 24 months and mandatory rehab requirements in their Group LTD policy. To ensure adequate coverage, they purchase $10,000 of Individual Disability Insurance.

At the time of claim, both Group LTD and Individual Disability benefits are approved. Here’s how RBC and Canada Life handle the integration:

Canada Life’s Approach

• Canada Life reduces the Individual Disability payout by 75% of the taxable Group LTD amount
• Calculation: 75% of $6,000 = $4,500 reduction
• Final Monthly Payouts:
  • $6,000 taxable from Group LTD
  • $5,500 tax-free from Individual Disability

RBC’s Approach

• RBC allows the total payout to exceed the issue limit ($10,000) using Combo Limits, reaching $10,475 per month
• RBC assumes a 40% tax rate on Group LTD, meaning they treat the $6,000 taxable benefit as if the claimant is only receiving $3,600 after tax
• Final Monthly Payouts:
  • $6,000 taxable from Group LTD
  • $6,875 tax-free from Individual Disability

Why RBC Has the Advantage

While both policies contain strong contractual wording, RBC’s Combo Limits provide a clear advantage—especially for high-income earners with taxable Group LTD benefits. A higher net payout makes RBC a preferred choice for those who need to maximize disability coverage.

It’s also worth noting that both RBC and Canada Life would pay out the full Individual Disability benefit if the claimant loses their Group LTD coverage—such as when transitioning to an “Any Occupation” definition.

Optional Riders Comparison: RBC vs. Canada Life

When choosing disability insurance, optional riders can provide valuable flexibility and enhanced protection. Below is a comparison of how RBC and Canada Life differ in their key rider offerings:

1. Regular Occupation Extender & Residual Disability

• RBC: Included as part of the base coverage.
• Canada Life: Must be added separately at an additional cost.

✅ Why it matters: This rider extends the “Regular Occupation”definition beyond the initial period (usually 24 months) and ensures benefits continue even if you’re able to work in another occupation. TheResidual Disability feature also allows for partial benefits if you can still work but experience a loss of income due to disability.

2. Own Occupation Rider

• RBC: Available to a limited number of professions.
• Canada Life: Available to all true 3A/4A occupations (that have not been upgraded).

✅ Why it matters:
With this rider, you can continue receiving full disability benefits while working in a different occupation and earning an income. This is especially beneficial for professionals who could transition into a new role but still want to maintain full benefits.

3. Cost of Living Adjustment (COLA)

• RBC: CPI-based, compounded annually, with:
  • 2% minimum increase
  • 10% maximum increase
• Canada Life: Choice of two options:
  • 8% max compounded (2% minimum)
  • 3% max compounded (no minimum guarantee)

✅ Why it matters: The COLA rider protects your purchasing powerby increasing benefits over time to keep up with inflation. The CPI-basedstructure at RBC ensures adjustments align with real inflation, while Canada Life provides a choice between higher or lower max increases, depending on needs.

4. Future Income Option (FIO)

• RBC:
  • You choose the annual increase amount (up to $3,000).
  • One-year carry-forward allowed (if you skip an increase, it can be used later).
  • Double option available at first anniversary (allows for a larger increase in year one).
  • Additional Increase possible if Group LTD is lost, additional increase available without medical underwriting if employer disability coverage ends.
• Canada Life:
  • You choose the total amount of increase available at the start of the policy.
  • Annual increases up to 20% of the total option amount (or33.33% if the prior year was unused).

✅ Why it matters:
FIO allows policyholders to increase their coverage over time as income grows, without medical underwriting.

5. Family Compassionate Care Rider (RBC Only)

• Provides up to 12 months of benefits if a spouse or child is diagnosed with a terminal illness and the insured takes time off to provide care.

✅ Why it matters:
This unique rider provides a financial safety net for policyholders who need to take time away from work to care for a loved one in a critical time. Canada Life does not offer a comparable option.

6. Long-Term Care Conversion (RBC Only)

• Allows the insured to convert their disability insurance into long-term care insurance between ages 55 and 65, without medical underwriting.

✅ Why it matters:
This rider ensures that as policyholders approach retirement, they can transition from income protection to long-term care coverage—offering financial security in later years without needing to requalify medically. Canada Life does not offer this feature.

7. Return of Premium (ROP) – Canada Life Only

The Return of Premium (ROP) rider provides 50% of premiums back every 8 years if no disability claims have been made. Canada Life recently repriced this option (November 2024), making it more attractive than before.

Cost Comparison: Standard vs. ROP

For a healthy, non-smoking 35-year-old professional male (Class 4A)purchasing a $10,000 monthly benefit with most optional riders:

• Without ROP: $2,753.75 per year (~1.1% of a $250,000 salary)
• With ROP: $4,130.63 per year (~1.65% of salary)
• Cost Difference: $1,376.88 per year

ROP Refund Calculation

After 8 years:

• Total Premiums Paid: $33,045.04 ($4,130.63 × 8)
• ROP Refund (50%): $16,522.52

To compare, investing the $1,376.88 per year difference instead would require an annual return of 8.96% to reach $16,522.52 after 8 years.

✅ Conclusion: ROP guarantees a return (assuming no claim), while investing the difference requires a higher return and some market risk.

How Does RBC Compare?

RBC offers a 20% discount for many professionals, which Canada Life does not.

• RBC Cost (with discount): $2,379.68 per year
• Canada Life (with ROP): $4,130.63 per year
• Difference: $1,750.95 per year

Investing $1,750.95 per year for 8 years only requires a 3.66% annual return to match the ROP refund.

✅ Conclusion: With RBC’s discount, investing the savings becomes a more attractive option, requiring just a 3.66% return.

Summary: RBC vs. Canada Life – Which is Best for You?

Both RBC and Canada Life offer strong disability insurance contracts, butRBC holds a clear advantage for high-income earners with taxable Group LTD benefits. Their Combo Limits allow for a higher total payout by factoring in taxation, resulting in a greater tax-free benefit.

However, it’s important to compare both carriers to determine which offers the best combination of rates, discounts, occupational class, and riders for your situation. If you’re looking for a Return of Premiumfeature, Canada Life provides strong value in that area.

Working with an experienced advisor can help ensure you have the best disability protection for your situation.

Book a free consultation with us to help you make an informed decision and secure the right coverage for your needs.

**RBC and the RBC Logo are property of Royal Bank of Canada