BCMA insurance: Defining “earned income”

Issue: BCMJ, vol. 54, No. 5, June 2012, Page 237 News
By: Sinden Luciuk,

Your earned income is a factor in determining how much coverage you are eligible to receive when you apply for disability insurance, and it is also used in calculating your entitlement to disability benefits at the time of claim. Earned income is calculated differently for insurance purposes than it is for income tax purposes.

Our disability insurer (Sun Life Financial) has well-established procedures in place to calculate earned income, which take into consideration the amount paid to you by your professional corporation (salary and bonus) and the net income or loss of the professional corporation, which is attributable to you. This calculation assumes that the performance of your professional services is the sole source of revenue to the corporation. If you change from a sole practitioner to an incorporated practice with no change in expenses it will not alter your earned income for the purposes of disability insurance. 

What about corporate dividends paid to a physician?
When calculating earned income for disability insurance, dividends are not considered earned income since they are paid from the professional corporation’s retained earnings. Dividends are just the distribution of the net income of the professional corporation which has already been included as income to you. See the Table for a sample calculation.

Earned income for the Physicians’ Disability Insurance plan (PDI)
To determine your eligible monthly PDI benefit, both your practice type and your earned income are considered. Earned income is calculated annually as of 1 April and includes your prior calendar year earnings, consisting of fee-for-service billings, sessional payments, or non-salaried income under a service contract.

The information provided here is not legal or financial advice; you should consult your attorney or accountant with any questions about professional corporations.

For a complimentary review of your insurance coverage by a non-commissioned BCMA insurance advisor, please contact Ms Julie Kwan at 604 638-8745 or 1 800 665-2262 ext. 8745 or e-mail jkwan@bcma.bc.ca.
—Sinden Luciuk
Manager, Insurance

Sinden Luciuk,. BCMA insurance: Defining “earned income” . BCMJ, Vol. 54, No. 5, June, 2012, Page(s) 237 - News.


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