Disability insurance replaces a portion of an individual's earned income when illness or injury prevents them from working. It is sometimes called income replacement insurance or disability income insurance.
The underlying risk is straightforward: Statistics Canada data consistently shows that the probability of a working-age adult experiencing a disability lasting 90 days or more is significantly higher than the probability of dying before retirement. Despite this, many Canadians are underinsured against income loss from disability. The advisor's job is to quantify the gap between the client's existing income-replacement resources (Employment Insurance sickness benefits, employer plans, government programs) and what the client would actually need to maintain their lifestyle and meet financial obligations.
Key framing for the exam: disability insurance is a contract under which the insurer agrees to pay a periodic benefit, usually monthly, for as long as the insured remains disabled within the meaning of the policy, up to the end of the benefit period. Both the definition of disability and the benefit period are critical contract features that directly determine whether and for how long a particular client will collect.