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disability insurance paperwork

Many clients we work with believe that, once they have successfully been approved for long-term disability (LTD) benefits, the battle with their insurance provider is won. They move on worry-free about the benefits they’re entitled to. However, many are unaware of the clauses and provisions that may come into effect as a claim progresses. One of the most common provisions we see is the insurance company’s ability and right to mitigate their own exposure. This means that they can hold you accountable to apply for any other disability benefits that you may be entitled to receive in order to reduce the amount they’re required to pay you. These other benefits are called “offsets” in a private LTD policy or Plan.

Most Common Offsets for LTD Claims

Understanding your insurance policy is essential to navigating your disability claim and paving a straight road toward continued LTD benefits at the maximum amount you are eligible for. For example, although your insurance company has calculated you’re eligible for $3000 per month, they will likely seek to lower the amount they’re required to pay you so that their monthly exposure to you is reduced by a significant amount. The most common misconception is that a disabled person can “stack” these benefits, meaning that they can add them all together. That is generally not true. So, on a $3,000 per month private disability benefit, you may be eligible for a $1,300 CPP Disability monthly payment, and a $1,200 workers’ compensation monthly payment. Your LTD insurer is likely able to offset both of those payments, and will then have its monthly obligation to you reduced to $500 per month. But, you are still receiving $3,000 per month.

Common offsets your insurance company will encourage or require you to apply to which would likely reduce the LTD benefit payments made by your insurance provider include:

  • Canada pension plan (CPP)
  • Retirement bonus/pay-out
  • Severance pay
  • Workers’ Compensation (WCB) or similar
  • Earnings from any employer, including vacation pay
  • Group, association, or franchise plans
  • Self-employment income
  • Individual disability policies
  • Government plans, except those that are excluded, such as EI benefits
  • Weekly indemnity benefits arising from a motor vehicle accident
  • COVID-19 related government benefits

CPP Benefits

Canadian Pension Plan Disability (CPP-D) benefits are the most common deduction for an LTD offset. Nearly every group insurance plan contains clauses that provide for the deduction of CPP-D benefits. Most of these clauses require the insured person to apply, and if denied, file an appeal for the denied claim. Once your application has been approved, the amount of your CPP-D benefits will be deducted from what your insurance company pays you, making it so they pay less themselves. Still, as mentioned above, you receive the same amount as you were initially entitled to.

Suppose you apply for CPP-D benefits and are approved after receiving LTD benefits for an amount of time. In that case, you may be required to hand over nearly all the retroactive payments you receive from Service Canada to the LTD insurer because there has now been an overpayment. Service Canada normally sends this money directly to the insurer to avoid confusion.

Most LTD policies allow for the deduction of the original CPP-D award, not the indexed amount after it increases each year to account for inflation. There have been several instances where LTD insurers have attempted to use the indexed amount when negotiating a lump sum settlement/surrender of the policy. There are certain policies that allow for the deductions of childrens’ CPP Disability benefits, but there are often ways to defend the application of this offset.

Severance Packages

Every insurance policy is different, and severance package deductibility depends typically on your policy’s wording. Sometimes the wording is straightforward and gives you a direct answer about the eligibility for severance packages to be deducted, but this isn’t always the case. In some instances, where severance packages aren’t explicitly mentioned, lawyers have successfully argued against insurance companies, and courts have ruled that they cannot deduct severance pay received by the policyholder.

What is a Zero Offset LTD Claim?

Understanding the Offset LTD definition can be difficult, but one our LTD lawyers consider essential to know.

Depending on the person and their disability, some may be eligible for several benefits that total as much as, or even more than, their LTD benefits. For example, your insurance provider could pay you $3,000 in LTD benefits. You may also be receiving a monthly WBC benefit of $2,500 and CPP-D benefits of $600. This means you would be receiving $3,100 in WBC and CPP-D benefits (possibly less – as little as $3,000 depending on how the WCB integrates with CPP Disability) which is $100 more than your LTD insurance benefits, resulting in what is called a zero offset.

When discovering this calculation, many might consider not bothering to make a claim with your insurance company. However, it is essential to make your claim with your insurance company even if it is a zero offset LTD claim.

Why You Should Pursue a Zero Offset LTD Claim

Although it may seem irrelevant to make an LTD claim when you know it will result in a zero offset, not applying can have long-term detrimental effects on your financial situation. If you lose your other income sources and your limitation period expires (usually one year) to apply for LTD benefits has expired, you could be left with no income sources and unable to work. So, even though in a zero offset LTD claim your insurance provider might not be the one paying you at that time, it is essential to be approved by your LTD provider, even if they are not paying you benefits, if your sources of income change in the future.

Even more important are the collateral benefits that flow with many LTD Policies.  In several situations, being approved for LTD benefits means that you can remain on your employer’s medical plan, continue to have life insurance with the premiums waived, continue to have pensions accrue as though you are working.  These issues are just as important to consider in every LTD case before you decide to take a buy-out or to go back on claim.  Normally, a buy-out means you lose all these collateral benefits.  When considering pension issues, this could be a mistake that costs you several hundred thousand of dollars.

Why Offsets in LTD Claims Can Be Beneficial

Being in a situation where you have some amount of LTD offsets can increase your chances of being approved for LTD benefits, or successfully resolving cases that are in litigation. An LTD insurer will feel more pressure to accept your application for benefits if you have successfully applied for other benefits, plus, the LTD insurer’s economic risk has been reduced. If you are in a zero offset situation, your chances of being approved are even more significant as the financial risk is minimal.

If you have been approved for CPP-D, this means the analysts at Service Canada consider you to be totally disabled and unable to work. This makes it more difficult for your insurance company to claim that you can work when the federal government has found your disability to be severe and prolonged – which is the test for CPP Disability.

How a Nova Scotia Disability Lawyer Can Help

Your insurance provider could be trying to deduct offsets from your LTD benefits they may not be entitled to. Our experienced LTD lawyers at Valent Legal have the knowledge and expertise to fight the unethical moves they might be taken against you. It’s imperative for you to understand the ins and outs of your insurance contract so that your insurance provider cannot take advantage of your situation with their well-equipped legal team.

Our Halifax LTD lawyers can help make sense of your insurance contract and understand which offsets will affect your LTD benefits. Contact Valent Legal for a free consultation today to protect your benefits before it’s too late.

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