Employment Insurance for Self Employed Individuals

January 2011, we are supposed to see the introduction of the new Employment Insurance (EI) benefits for Self Employed Individuals. As a self employed person this is of some interest to me. The benefits available are:

• maternity benefits;
• parental benefits;
• sickness benefits; and
• compassionate care benefits.

Starting January 31, 2010 you can apply for the program, however, you must pay premiums for a period of one year before you can make any claim. Furthermore, once you opt in to the program you cannot opt out in the future.

Self employed people are not eligible for income replacement due to job loss, work slowdowns, business closure etc. These types of claim fall into the "regular claim" category which accounts for nearly 60% of all EI claims, yet you still gotta pay the full premium even though the benefits you are eligible for, only account for about 24% of all claims, good deal... /s

Premiums for EI are normally split between the Employee and Employer, the Employee pays 1.73% of their gross earnings to a maximum of $747.36 and the Employer pays 2.422% of the employee’s earnings to a maximum of $1046.30. The maximum benefit and premiums are based on the Yearly Maximum Pensionable Earnings (YMPE) which for 2010 is $43,200. The self employed are required to pay BOTH premiums, or 4.152% of their earnings into EI. This brings the maximum premium to $1793.66 for the year.

Let’s see what kind of disability policy we can buy for $1793.66 or $149.47 a month. But first some assumptions, for all cases we will assume that the individuals earnings are exactly $43,200 as this is the maximum that EI can provide. Individual policies can easily go higher. EI is not dependent on age, health, or occupation so I will compare to two different scenarios to see how things stack up in both best and worst case scenarios. Furthermore, I can’t actually illustrate an apples to apples comparison of EI to a Disability policy. They simply do not make disability policies that suck as hard as EI benefits do. *since I already know how this ends, I think my bias is starting to show through don’t you?

I have illustrated using as close as possible but the differences are still pretty vast. Think of this as a Crab Apples (EI) to Red Delicious Apples  comparison.

Self Employed Individual EI

55% of your pre-disability income, to a maximum of $457 per week, TAXABLE

Benefits Start after 14 days of injury or illness, and lasts for 15 weeks.

Premium Cost: $1793.66

Best Case Scenario – Personal Disability

Male, Age 25, Non-Smoker, annual income $43,200

75% of your pre-disability income, to a maximum of $675 per week, Non-Taxable

Benefit Start on first day of accident or illness, and last for 24 MONTHS.

Annual Premium Cost: $1261.00 (hmm... though choice here /s)

The personal disability policy not only pays your nearly double the income after tax, it pays it two weeks sooner and three and a half times as long. Furthermore, the premium is $500 a year less expensive. If you are young and in good health the choice is obvious.

Worst Case Scenario - Personal Disability

Male age 55, Smoker, annual income $43,200

70% of pre-disability income, to a maximum of $630 per week, Non-Taxable

Benefits start on first day of accident or illness, and lasts for 24 months

Annual Premium Cost: $2051.55 (not so good)

The tides turn if you are older and unhealthy. You are still getting more income and better benefit periods but the cost has gone up dramatically. I would try and reduce the benefits to be more apples to apples, but I can’t, this is the crappiest policy my software will let me illustrate. *there is that bias again Still for an extra $35.17 a month you are getting a way better policy than what EI can provide.

So if you were contemplating the new Self Employed Individual EI plan, don’t. You can probably get a far better disability benefit from a personal policy. Even in our worst case scenario I would wager that the extra bucks are worth the better coverage. The saving grace of this new EI plan is that if you are uninsurable, you previously had no options at all. If you have a health problem that excludes you from getting disability insurance EI is now an option that wasn’t there before. The disability policy also doesn’t allow for benefits to be paid during parental or maternity leave, but these this can, usually, be planned for in advance.

TL;DR If you are self employed and were contemplating the new EI benefits for self employed individuals, you will probably be better served by a better/cheaper/faster disability policy. Unless, you are old and/or uninsurable.

E.O.&E.