Can Your Disability Insurer Deduct Canada Pension Plan Benefits from your Monthly LTD Benefit?

Can Your Disability Insurer Deduct Canada Pension Plan Benefits from your Monthly LTD Benefit?

Primary CPP Benefits – The Answer is Yes

Most Canadians who are receiving Long Term Disability Benefits through a Group Insurance Benefit Plan are asked, at some point, to apply for disability benefits from the Canada Pension Plan.      Most group policies require this and if approved will result in a reduction of your monthly LTD benefit. Moreover, a failure to apply could result in the insurance company estimating the amount of CPP benefits and deducting the amount, even if you’re not receiving it.

People have a lot of difficulty understanding why this is the way LTD benefits work when they have paid into the plan while they were working.    Why should the insurance company benefit from a Canadian Government program? The short answer is the law permits this and whether CPP can be deducted, sometimes including dependent or children’s portion of CPP depends on the contract wording of the specific policy.     The cost of the insurance factors in the potential reduction and, the insurance companies, would argue, the premium cost of these LTD plans would be much higher if they weren’t permitted to deduct CPP.

So, while it may seem unfair, the best advice is to apply for CPP- Disability if it appears that you will be off work for an indefinite period of time.

Dependent CPP Disability Benefit – The Answer is Maybe

When it comes to amounts a dependent – usually a child – may be entitled to receive if you are receiving disability benefits from CPP, whether the insurance company can deduct all or part of this very much depends on the policy wording.     Cases that were decided before the Ruffolo v. Sun Life decision, suggested that insurers could not deduct the child’s portion of CPP because those monies belonged to the child, even if they were being paid to the disabled adult.  Ruffolo stands for the proposition that if the policy wording indicates that the insurer can deduct the child/dependent portion of CPP, it is permissible.

In some cases, the deduction is a dollar-for-dollar deduction, in other cases, it falls into the “All-Source Maximum” calculation.    In plain English, the all-source maximum usually means that the combined amount of income you receive from all sources cannot exceed a certain percentage – most often 85% of your prior income. 

Conclusion:

In most Group LTD benefit cases, your insurance company is entitled to deduct the basic CPP disability benefit directly off your benefit (ie., if your benefit equals $3,000 per month and you receive $1000 per month from CPP-D, the net LTD benefit would be $2,000 per month).

In some cases, they may be able to further deduct all or part of monies paid to your children or dependents.Each particular situation is dependent on the policy you are being paid under.  If you think a deduction is being improperly made or the insurance company is deducting too much, you should contact our office to review your situation to discuss whether you are receiving the correct amount.

Has your long-term disability claim been denied? Contact Share Lawyers and put our experience to work for you. We have recently settled cases against Great-West Life, Desjardins, Manulife, RBC Insurance, Sun Life, and many more. We offer free consultations and there are no fees unless we win your case. Find out if you have a disability case.