Worked Calculations and Buying Checklists
Disability income gap: how much of your pay would LTD, EI and CPP really replace?
Worked Canadian example of a disability income gap: group LTD percentage and cap, tax on benefits, CPP offsets, the waiting period, inflation, and how to size a top-up.
To find your disability income gap, compare your current take-home pay with the after-tax income you would receive while disabled, month by month: EI sickness or STD during the first weeks, then group LTD or an individual policy after the elimination period, with CPP or QPP disability usually deducted from, not added to, an LTD benefit. For most employees with a group plan paying 60% to 70% of gross salary, the gap is roughly a quarter to a third of take-home pay, larger for high earners because of monthly maximums, and much larger in the first four months if there is no STD plan. If you have no LTD plan at all, the gap after EI ends is close to your full pay, less any CPP disability benefit you qualify for.
This guide is part of how much life insurance do I need, the calculations overview.
Step 1: collect five numbers
| Number | Where to find it |
|---|---|
| Your monthly take-home pay | Pay stub: net pay x pay periods / 12 |
| LTD percentage, monthly maximum and elimination period | Benefits booklet, "Long-term disability" section |
| Who pays the LTD premium | Booklet or pay stub; it decides whether benefits are taxable |
| STD or salary continuance | Booklet or employer policy |
| Essential monthly expenses | Your budget: housing, food, transport, debt payments, insurance |
Step 2: a worked example
Illustrative figures. Jordan, 42, in Ottawa, earns $84,000 a year, or $7,000 a month gross. Take-home pay is about $5,250 a month. The employer pays the LTD premium; the plan pays 66.7% of salary up to $6,000 a month, after a 119-day elimination period, own occupation for 24 months. There is no STD plan.
Months 1 to 4 (elimination period). Jordan has 6 paid sick days, then claims EI sickness. Jordan's insurable earnings exceed the annual maximum, so EI pays the cap of $729 a week, taxable. Over roughly 15 paid weeks that is about $10,900 gross. Pay lost after the sick days, over about 16 weeks, is about $25,800 gross. Gap in this phase: about $14,900 gross, or very roughly $11,000 after tax.
From month 5 (LTD). Benefit = $7,000 x 66.7% = $4,669 a month, under the $6,000 cap. Because the employer paid the premium, the benefit is taxable, but LTD is not employment income, so no CPP contributions or EI premiums are deducted. Assuming an average income tax rate of 18% on $56,000 a year (illustrative; your rate depends on province and deductions), after-tax LTD is about $3,829 a month.
Monthly gap after tax: $5,250 - $3,829 = $1,421.
If CPP disability is approved later. Say CPP pays $1,250 a month. The LTD insurer reduces its payment to $3,419. Jordan's total gross stays $4,669; the gap does not change, but Jordan must repay any LTD overpaid while CPP arrears accumulated.
Run your own numbers in the income gap calculator.
Step 3: adjust for what changes when you stop working
| Change | Effect on the gap |
|---|---|
| Commuting, work clothing, lunches stop | Gap shrinks |
| Workplace pension and RRSP contributions stop | Gap shrinks now, but retirement savings fall behind |
| Group health and dental coverage | Check whether it continues during LTD; if not, the gap grows |
| Higher medical and therapy costs | Gap grows |
| A partner reduces work hours to help | Gap grows |
If Jordan's essential expenses are $4,500 a month and $300 of work-related costs stop, Jordan needs $4,200 to cover essentials. After-tax LTD of $3,829 still leaves $371 a month uncovered on essentials alone, and nothing is going towards retirement.
Step 4: account for time and inflation
Most group LTD plans do not index benefits fully. At 2% inflation, a fixed $4,669 has the purchasing power of about $4,669 / 1.02^20 = 4,669 / 1.486 = $3,142 after 20 years. A claim starting at 42 could last to 65, so inflation matters more than it seems.
Also mark the 24-month change on your timeline. If Jordan can do some other job by then, the plan may stop paying, even though CPP might refuse a claim because its own test is stricter. That risk is not part of the gap formula but should shape your choices.
Step 5: size a top-up
Options to close the gap:
- Individual disability insurance. Insurers limit the total benefit from all sources to a share of income, taking group coverage into account, so the available top-up can be modest. Because Jordan would pay the premium personally, the benefit would be tax-free: a $1,000 monthly top-up adds the full $1,000.
- Optional or employee-paid LTD. Some employers let employees pay the LTD premium so benefits become tax-free; see group LTD taxation.
- Emergency fund sized to the elimination period: about $11,000 in Jordan's case.
- Critical illness insurance for specific one-off costs, not for monthly income.
Compare individual quotes with the disability quote comparison.
Without any LTD plan
If Jordan had no LTD, after EI ended the only income would be a CPP disability benefit, if approved: for example $1,250 a month gross, about a quarter of take-home pay. Self-employed workers face the same picture; see self-employed income protection.
Frequently asked questions
Should I compare benefits with gross or net pay?
With net pay, after converting the benefit to after-tax. Taxable and tax-free benefits are otherwise not comparable.
Does the LTD maximum matter if I earn a moderate salary?
Check it anyway. A plan paying 66.7% up to $5,000 a month caps anyone earning more than about $90,000.
What if I am part-time or contract?
Group plans often require minimum weekly hours. Contract workers frequently have no LTD and should treat the gap as their whole income.
Do I need professional help to do this?
Not for the arithmetic. For tax on large lump sums or a complex group plan, an accountant or fee-only planner can confirm the figures.
Sources
- EI sickness benefits (canada.ca) — 2026 weekly maximum
- CPP disability benefit (canada.ca) — 2026 amounts
- Canada Revenue Agency — tax on wage-loss replacement benefits
- Related: disability insurance terms
