Considerations when selling insurance to the gig economy

Hundreds of thousands of Canadians could be in the market for individual disability insurance because they depend on gig-economy work, but placing coverage is not easy, advisors suggest.

Individual disability insurers have traditionally favoured white-collar professionals like dentists and doctors, said Geoff Cook, certified financial planner with Infinite Financial in Barrie, Ont.

“You can’t really buy disability without [working] 30 hours [a week], at least,” he said. “And then you’ve got to supply a T4, and if you don’t supply a T4, you might not actually be getting a decent product.”

“Many in the gig economy are self-employed and they are concerned about reporting their income to justify the benefit amount,” said Jean Salvadore, senior director of life and living benefits with RBC Insurance. She explained that underwriters can work with business owners and contract workers to evaluate business and personal income so that all income is counted.

Placing individual disability for gig workers can also be complicated because workers could potentially have multiple jobs, said Toronto-based advisor Brian Shumak.

As such, advisors should manage gig workers’ expectations on coverage availability. For example, if a gig worker can get individual disability coverage, it will probably be in the guaranteed renewable category rather than non-cancellable category, Shumak said.

In a non-cancellable policy, premiums cannot be increased, benefits cannot be reduced and the insurer cannot unilaterally cancel the contract. With a guaranteed renewable disability policy, the insurer can raise the premiums for everyone in a certain class or category but cannot raise individual premiums.

“The ability to qualify for a non-cancellable product is diminishing and as a result of the historic claims experience, you’re going to see a lower desire for the remaining companies to maintain the non-cancellable product,” Shumak said, alluding to Manulife Financial Corp.’s decision in 2022 to stop selling its non-cancellable products.

Another area in which to manage expectations is the scope of disability coverage. In the event of a claim, a dispute could arise between the claimant and insurer over whether or not the claimant can do their job, Cook said, suggesting that an advisor should explain the definition of “disability” in a policy to clients.

The ideal policy would pay income replacement if the policyholder cannot do the duties of the job they are trained to do, Cook said. “[But] there’s another definition of disability called ‘any occupation,’ which means, for lack of better terms, that if you can work anywhere, we won’t pay you. If you can’t pound nails as a carpenter but you could be a greeter at Wal-Mart, we won’t pay you.”

“Any occupation” coverage is generally less expensive.

The share of Canadians in gig-economy jobs (including drivers, artists and freelancers) nearly doubled to 10% in 2020 from 5.5% in 2005, Employment and Social Development Canada said in a report released in March. This works out to roughly two million Canadian gig workers. A separate 2019 Statistics Canada survey found 48.6% of gig workers had no wage-earning job and relied solely on gigs.