The Canada Pension Plan (CPP) provides disability benefits to those who have made enough contributions to the CPP over time and who have a disability that is both severe and prolonged such that the applicant cannot work. This program is excellent because it can provide financial relief for those in difficult situations, but the logistics behind the CPP disability plan can be confusing for anyone, even after you’ve been approved.
If you’ve received retroactive payment from CPP disability or a letter from your long-term disability (LTD) insurer claiming you owe them money, you likely have some unanswered questions. Our LTD lawyers have the expertise to answer all your CPP disability overpayment questions.
What is CPP disability retroactive payment?
Applying and being approved for CPP disability can take months. It would be unfair to those entitled to benefits if they were only eligible for benefits from when they were approved. The time it takes to get approved is beyond an applicant’s control.
When you are first approved for the benefit, Service Canada will issue a one-time retroactive payment for the past CPP benefit you were eligible for while waiting for your approval. As of January 2020, your CPP disability retroactive payments can go back a maximum of 12 months back from the time your application was received.
LTD Benefit Offsets
Insurance companies are allowed to offset LTD benefits with other forms of disability benefits in almost all policies. This means that they will reduce what they payout to you by the amount you receive from other sources, usually dollar-for-dollar.
Most policies require the policyholder to apply for CPP disability benefits, and some even require the policyholder to appeal all denials. If you’re approved, they have the right to deduct the amount of CPP disability you receive from your current LTD monthly payment. Insurance companies have many strategies in place to help save themselves money.
If you refuse to apply for CPP, an insurance company may have the right to deduct the amount you would hypothetically receive from CPP disability, or other sources. Your insurer could also claim money from employee severance payments, personal injury settlements, or worker’s compensation as offsets to reduce your monthly LTD payment. Every policy is different, and it is critical that you understand how the offsets work.
To help clarify what this might look like for you, consider the following example:
You are entitled to receive $3000 per month in LTD disability payments from your insurer. You then get approved for CPP disability of $1000 per month. Now, your insurance company will deduct $1000 from what they pay you each month. The result is $2000 in LTD benefits plus $1000 in CPP benefits. You don’t receive any less than what you were entitled to, but it is now received through multiple sources.
If you are receiving disability benefits of any kind, or any sources of income, your insurance company should know. If they find out after they have paid out LTD benefits while you were also receiving benefits/income elsewhere, they will consider that you have been overpaid. They may also terminate benefits if they believe that the policyholder has purposely withheld this information. If you receive a CPP disability retroactive payment, they will also find that they overpaid you for the duration of past CPP benefits you received in a lump sum payment.
How offsets affect the CPP disability retroactive payment
When the CPP pays your retroactive disability payment, your insurer will likely claim you were overpaid during the months the CPP retroactive money is meant to cover. If your policy allows your insurance provider to offset their payments with other benefits, they will ask for the “extra” money they paid you over the duration you received back payments for.
Most of the time, Service Canada (this is who administered CPP-D applications and payments), will send the CPP-D money directly to the LTD insurer. But not always, and definitely not if your application for LTD benefits is pending.
You are entitled to receive $3000 per month in LTD disability payments from your insurer and have received them for six months. You then get approved for a CPP disability plan of $1000 per month. CPP will pay you a lump sum of $6000 to cover the six months of $1000 you missed. Your insurance company will claim that they overpaid you by $6000 since their payment should have been offset from CPP. Most insurance providers will ask for what they overpaid by in-full. You will be forced to hand over your entire retroactive payment to your insurance company to cover the overpayment.
Please bear in mind that it is possible that you receive retroactive CPP-D benefits, and not all of them will be capable of being clawed back by the LTD insurer. For example, if you receive retroactive CPP-D benefits going back 12 months, but your LTD insurer only started paying your claim 6 months ago; then your LTD insurer will only be entitled to offset the 6 most recent months.
It is also important to note that if your LTD insured cuts off benefits, then they are not allowed to continue offsetting the future CPP-D payments.
What If I Don’t Tell My Insurer?
When an insurance company finds out you were receiving benefits elsewhere, they will ask for payback. Since this is outlined in the policy and agreed upon by both parties, there’s no other option but to pay your insurance company back for their overpayment. To avoid LTD disability overpayments, make sure that your insurance provider is aware of all other forms of disability benefits you are receiving so they can be appropriately deducted from what they owe you.
If your insurance company discovers you have applied and been approved for CPP disability benefits, they will require you to pay them a retroactive payment. If your provider asked you to apply and you did so and were approved without telling them, this could create an even worse scenario. You have a duty to deal with your LTD insurer in good faith and to follow the terms of your insurance contract. Breaching this duty could lead your insurance company to withhold benefits, terminate the policy, and even commence a lawsuit against you.
How Do I Avoid LTD Disability Overpayments?
The best thing you can do is be completely honest and upfront with your insurance provider about any other forms of benefits and income you receive or are applying for. This information should never be withheld. Trying to hide any different types of disability payments or income from your LTD insurance provider will not work.
You must act in good faith with your LTD insurer. This means you cannot mislead or withhold information that they are rightfully entitled to. If you don’t follow this, it can be seen as violating the terms of the policy. Some insurance companies take a hard stance against withholding this type of information and can terminate your LTD benefits because of your dishonesty. However, it is more likely that your benefits will continue, and you will owe them for what your LTD payments should have been reduced by.
What Should I do If I’m Unable to Pay the Insurer Back?
Because of the many provisions that make up your insurance contract, it is nearly impossible for a policyholder to understand and remember every detail. Most people are unaware of the consequence of being approved for CPP disability after already receiving LTD benefits. Our LTD lawyers are very aware of the many constructs of typical insurance policies you need to be mindful of.
In many cases, people do not know they need to make a retroactive payment to their insurance provider long after the retroactive payment they received from the CPP is already spent. This can leave an insured person owing thousands of dollars with no way to pay it back. Our long-term disability lawyers always recommend that, if you can, do not spend any of your retroactive payment. The best thing to do is to pay the insurance company what you owe them as soon as you receive your CPP’s retroactive payment.
If you are unable to pay back your LTD disability overpayments, there are a few things that could happen.
A payment plan could be set up for your benefit
Although an insurance company is under no obligation to do so, an insurance provider will sometimes set up a payment plan for you to pay back their overpayments over time instead of all at once. We have negotiated payment plans from 6 months up to 18 months.
Your insurance company can demand payback
Since it was agreed upon by both parties, the insurance company is legally entitled to receive back pay for their overpayment. Commonly, they will request to have the sum paid immediately.
Your LTD could be withheld or reduced
This frequently happens to collect on an outstanding overpayment debt. An insurer could clawback up 50% of one’s monthly benefit. If you can’t provide the full retroactive payment to your insurer, you’ll likely see your insurance company reduce your monthly payments to begin collecting their debt. The amount they can reduce your LTD payments by, or if they can reduce it, will depend on your policy.
Your insurance company could file a lawsuit
As discussed, it is an insurance company’s legal right to ask for retroactive payment. If you cannot pay it back, it is not uncommon for insurance companies to file a lawsuit against the insured person, particularly if the policyholder is refusing to discuss the issue with the insurer. These lawsuits are hard to defend because, as stated by and agreed upon in your insurance policy, you do owe them what they overpaid you. The lawsuit process could result in a judgment against you. This judgment means that they can put liens on your bank accounts or property you own.
You can declare bankruptcy
If you have already spent your CPP disability retroactive payment, your insurance company refuses to reduce your benefits or set up a payment plan, and you have no way to pay back your insurance company, declaring bankruptcy may be your only option. However, you might still owe this debt even if you do declare bankruptcy because of your insurance contract. Remember that if you are still disabled and entitled to benefits under the policy, the insurer will holdback LTD payments (or some portion) until the debt is extinguished. The reductions of income may be what causes an individual to become insolvent. You should talk to an LTD lawyer before engaging a bankruptcy trustee to determine if you negotiate a solution with the LTD insurer
LTD disability overpayments can create several difficult situations to overcome. Finding out you owe your insurance company thousands of dollars does not make life any easier for those already facing the challenge of living with a disability. If you have recently been approved for CPP and are unsure of how it’s going to affect your life, call us at 1-902-708-5438 or send us an email to arrange your free, no-obligation, and confidential consultation.