Income Replacement Insurance - Ontario Car Insurance Explained

Many people’s lives have changed over the course of the Covid-19 pandemic, including those who run their own business. Entrepreneurs and anyone self-employed should consider income replacement insurance as a solution to replace their income should they be involved in a car accident.

Stay-at-home orders, lockdowns and other health measures aiding in the prevention of transmission had Ontario residents working at home, avoiding road trips, only making essential trips, and going out less frequently.

Therefore, insurance companies in Ontario provided various levels of relief to drivers across the province with discounts or refunds on their car insurance.

The Ontario government’s release of a “Roadmap to Reopen” signals that a return to regular driving habits (and traffic) is soon to return.

If your life is expected to return to pre-pandemic usage, your car insurance coverage options shouldn’t need any changes. However, if you will be returning to the office and commuting daily, it’s important to notify your insurance broker to update your policy.

Please note that we recommend an annual review of your insurance options.

On the other hand, we’ve had a number of our home insurance clients notify us that they started their own business and won’t be returning to “the office”. This has started many wonderful conversations with self-employed individuals about the income replacement options with their car insurance. 

The Covid-19 pandemic has re-introduced the importance that self-employed people must ensure they have appropriate safeguards in place should they be unable to earn income.

What is income replacement insurance?

The income replacement benefit on your Ontario car insurance policy will provide a weekly benefit if you are unable to work due to a car accident. In Ontario, the statutory (standard) income replacement benefit is 70% of your gross income up to $400.

When you should increase the income replacement benefit

If the statutory weekly maximum of $400 isn’t enough to cover your current tax income level, you may want to consider increasing the income replacement benefit limit to $600, $800, or $1,000.

If you are self-employed, you don’t get many of the benefits offered to employees, including disability insurance.

When considering the amount of income replacement insurance you would need in the event of an accident, it’s important to know which policies kick in and at what time.

Typically, you would first claim wage loss from a disability insurance plan that you purchased, followed by any employee benefit programs, and finally your car insurance.

Therefore, if you don’t have disability insurance or employee benefits, increasing the income replacement benefit on your car insurance policy may be the best option.

How to Determine Your Income Replacement Insurance Benefit

The standard benefit you receive in Ontario is $400 and is calculated as 70% of your gross income. Any lost income during the first 7 days following an accident will not be covered.

The benefit will be paid bi-weekly and will begin 7 days after the date of the accident.

To put this into perspective, the statutory benefit will max out at $400 for anyone earning over $30,000 gross income.

If you choose to purchase the enhanced income replacement benefit, you will reach the max at the following income thresholds:

• $600 weekly benefit will max out for salaries of $45,000+
• $800 weekly benefit will max out for salaries of $60,000+
• $1,000 weekly benefit will max out for salaries of $75,000+

Some disability insurance policies can last the rest of your life but the income replacement benefit will only cover a maximum of 104 weeks following the accident.

To ensure you receive the income replacement benefit, you will also need to notify your insurance company of the accident within 7 days and complete an application within 30 days. 

Income Replacement FAQs

Does car insurance pay for loss of income?

Under the Accident Benefits portion of your Ontario car insurance policy, the income replacement benefit will provide a weekly benefit of 70% of your gross income up to $400 if you’re unable to work due to injuries sustained in a car accident.

What qualifies for income replacement benefits?

The income replacement benefit is paid out when accident-related injuries prevent you from working at the same level prior to the accident.

How is the income replacement benefit calculated?

The income replacement benefit is calculated as 70% of your gross income in the 52 weeks prior to the accident or the four weeks preceding the accident, multiplied by 13.

Consult Your Insurance Broker

To review your current income replacement insurance coverage options, contact your Scrivens insurance broker today.