LTD & CPP Disability Benefits
If you are receiving Long Term Disability (LTD) benefits most likely you have received a letter from your insurer requesting that you apply for CPP disability benefits. Your insurer has also likely informed you that should you qualify for CPP disability benefits it will be entitled to deduct this monthly benefit from your LTD benefit. The purpose of this article is to address in a general fashion[i] questions clients usually have when faced with a request (or sometimes a ‘demand’) from their insurer to apply for CPP disability benefits.
What are CPP Disability Benefits?
CPP disability benefits are available to individuals who suffer a “severe and prolonged” disability. "Severe" means that you are incapable of regularly pursuing any substantially gainful occupation. “Prolonged” means that your disability likely prevents you from going back to work in the next 12 months, or will likely to result in death.
To be eligible for a CPP disability benefit, you must have made enough CPP contributions in at least four of the last six years, or you must have have made valid CPP contributions for at least 25 years, including three of the last six years, prior to becoming disabled. Special exemptions are available for those who have made insufficient contributions. Information about these special contribution exemptions can be found at http://www.servicecanada.gc.ca/eng/isp/cpp/exceptions.shtml.
There is no cost associated with applying for the CPP disability benefit, although your doctor may charge you for completing the medical questionnaire. For information about starting the CPP disability benefit application process, and to download or order the forms, visit http://www.servicecanada.gc.ca/eng/isp/cpp/disabforms.shtml. The maximum monthly CPP benefit is $1,212.90[ii], although the average amount of the benefit is $880.44 (the amount of the benefit depends on your contributions). It is important to note that should you qualify for the CPP disability benefit each of your eligible children will receive $228.66 per month.[iii]
Must I Apply for the CPP Disability Benefit?
In most cases the answer is “yes.” Most LTD policies stipulate that a claimant must apply for the CPP disability benefit. Many LTD policies, furthermore, have terms which allow the insurer to deduct from your monthly LTD benefit the amount that you likely would have received from CPP had you applied for the disability benefit.
Should I Apply for the CPP Disability Benefit?
Yes. Even if your LTD policy does not require that you apply for the CPP disability benefit, it will almost always[iv] be in your best interests to do so. The rest of this article will detail the advantages of receiving the CPP disability benefit (even if your LTD insurer is entitled to deduct it).
Evidence of Disability
Arguably it is more difficult to qualify for the CPP disability benefit than it is to qualify for most LTD benefits.[v] To qualify for the CPP disability benefit you must be so disabled that you are unable to perform any substantially gainful employment. The strictest disability test for most LTD policies is whether you are to perform any occupation for which you are reasonably suited by education, training or experience. For example if you are able to work a minimum wage job (e.g., parking lot attendant) you would not qualify for the CPP disability benefit, although you may still qualify for the LTD benefit (especially if you earned a substantial income prior to your disability).
I find that insurers will often not challenge a person’s entitlement to the LTD benefit if she is receiving the CPP disability benefit. This is for two reasons. (1) The insurer may acknowledge that if the person is disabled enough to qualify for the CPP disability benefit than she is likely sufficiently disabled to be entitled to LTD benefits. (2) As the LTD insurer is usually entitled to deduct the CPP disability benefit its financial exposure is significantly reduced and the claimant’s file becomes less of a priority.
CPP Benefits are Indexed to Inflation
CPP benefits are indexed to inflation while most LTD benefits are not. LTD policies typically stipulate that the insurer is entitled to deduct only the initial amount of the CPP disability benefit. The insurer is not entitled to deduct any annual increases in the CPP disability benefit. For example, if in 2012 you started receiving a CPP disability benefit of $880 per month, that amount would have increased to $895.84 in 2013.[vi] The insurer, however, will continue to deduct $880 per month and ignore the $15.84 increase in the CPP disability benefit. Especially in a younger person these annual indexations of the CPP disability benefit can amount to a significant financial advantage for the disabled person.
The LTD Insurer may not be Entitled to Deduct the Child Benefit
Is the LTD insurer permitted to deduct not only the claimant’s CPP disability benefit but also the CPP disability benefits attributed to the claimant’s children? The answer to this question will often depend on the policy. Some policies state the insurer is entitled to deduct the child benefit; some policies state the insurer is not entitled to deduct the child benefit, and some policies are totally silent on the issue.
If the policy states that the insurer is entitled to deduct the CPP child benefit then it is deductible . If the policy states that the CPP child benefit is not deductible then there is a significant financial advantage in obtaining the CPP disability benefit in that the additional $228.66 per child the person receives is not deducted by the insurer.
The more interesting legal question is whether the insurer is entitled to deduct the CPP child benefit when the policy is silent on the issue. Decisions on this issue go both ways (i.e., some judges allow the insurer to deduct while others do not). The law in Ontario is still not settled on this issue, but in my view the following arguments suggest that the CPP child benefit is not deductible by insurers (unless it is clearly spelled out in the policy).
The CPP legislation stipulates that the child benefit is paid to the child. If the child is under 18 years of age the benefit is paid to the disabled parent, but, in essence, the money is paid to the disabled parent in trust for the child. Assuming the child still receives the benefit when he turns 18 years of age (as when he is still in school) the child benefit is paid directly to him.
The CPP legislation permits the disabled person to assign his benefits to a LTD insurer (the LTD insurer will typically insist that the disabled person execute an assignment when he applies for the CPP disability benefit). The CPP legislation, however, does not allow the disabled person to assign the child benefit to an insurer. This underscores the fact that the child benefit is paid to the disabled person in trust for his children.
The LTD insurer drafted the policy. The disabled person had no input whatsoever. If the policy is unclear or ambiguous about whether the CPP child benefit is deductible then the ambiguity should be resolved in favor of the disabled person.
Impact on CPP Retirement Pension
The receipt of the CPP disability benefit will also have a positive impact on the disabled person’s CPP retirement pension. The CPP legislation stipulates that in calculating the amount of the retirement pension the months in which the contributor received a disability benefit are excluded. In other words the disabled person will not be penalized for the numerous months (or years) that she was disabled and not able to contribute to her CPP retirement pension. This can be a very significant advantage especially for a young disabled person as she could face many, many years where she is unable to contribute to her CPP retirement pension.
It is important to note that if the disabled person is in receipt of LTD benefits only, no contributions will be made to her CPP retirement pension.
CPP Disability Benefits are Taxable
CPP disability benefits are taxable. LTD benefits may or may not be taxable depending on who paid the premiums for the benefit. LTD benefits are non-taxable if the employee pays the entire premium. LTD benefits are taxable, if the employer pays any part of the premium.
If your LTD benefits are non-taxable you should ensure that the insurer deducts only the net amount you receive from CPP. Most policies are silent on the issue of whether the LTD insurer is entitled to deduct the net or gross amount of the CPP disability benefit. There is an Ontario Court of Appeal decision, however, which strongly suggests that the LTD insurer is entitled to deduct only the net amount received by the disabled person.[vii] If your insurer is insisting on deducting the gross amount of the CPP benefit from a non-taxable LTD benefit you should speak to a lawyer to see whether the insurer’s position is correct.
Have Your Eggs in Two Baskets
Another important advantage in collecting the CPP disability benefit is that your financial security will not depend solely on the decisions of a LTD adjuster. It is rare for CPP to terminate the payment of disability benefits. In fact, I found CPP very reasonable to deal with in cases where my client believes that he is able to return to some form of employment. CPP has a return-to-work protocol which allows the disabled person to attempt to return to the workforce without automatically jeopardizing the payment of future disability benefits. LTD insurers, on the other hand, will sometimes terminate benefits with little notice, and will be quick to latch onto evidence which they believe (whether reasonably or not) will support the termination of benefits.
Whenever I see clients regarding personal injury or disability claims one of the first things I inquire about is the status of CPP disability benefits. Surprisingly, many disabled individuals are unaware of the existence of this benefit. There are a number of advantages in obtaining this benefit, and it is better to apply for this benefit sooner than later.
David Hayward was called to the bar in 1994 and practices in Burlington Ontario with Martin & Hillyer Associates. David has an active personal injury practice and believes that it is equally important to focus on SABS issues as well as tort issues on behalf of his clients. He has conducted numerous arbitrations, and has successfully argued appeals at the Financial Services Commission of Ontario. He has also argued cases before the Ontario Court of Appeal.
In addition to his personal injury and disability practice, David also practices criminal law with a focus on mental health issues. He is frequently appointed to represent mentally ill accused persons. He also conducts hearings before the Ontario Review Board.
[i] The answers to many of the issues and questions addressed in this article will depend upon the wording of each person’s LTD policy. You should always get legal advice which addresses the particular circumstances of your situation and LTD policy if you have questions about the interaction of LTD and CPP disability benefits.
[ii] CPP benefits are indexed to inflation. These are 2013 figures.
[iii] The CPP legislation defines an eligible child as a child of the contributor who is less than eighteen years of age. It also means a child of a contributor who is less than twenty-five years of age and who is in full-time attendance at a school or university. And it also means a child of a contributor who is eighteen or more years of age and is disabled.
[iv] In my 19 years of practice I can think of only one occasion where it was not in my client’s best interests to apply for the CPP disability benefit. In that case the LTD insurer was entitled to deduct not only my client’s CPP disability benefit but also the CPP benefits she received on behalf of her children. In the particular circumstances of that case my client would have been effectively exchanging her non-taxable LTD benefit for a taxable CPP disability benefit.
[v] In fact LTD insurers are usually much more reticent to acknowledge a person’s entitlement to disability benefits than the assessors at CPP. LTD insurers will often resort to video surveillance or having the person assessed by a doctor of their choosing when assessing a person’s disability claim. I have never had a case where CPP relied on surveillance evidence, and I can recall only 2 cases where CPP requested that my client be assessed by a doctor of its choosing. In my experience LTD insurers differ from CPP in that they often adopt an adversarial approach to disability claims.
[vi] CPP disability benefits are indexed using the Consumer Price Index (CPI). In 2013 the benefits increased by 1.8%. The CPP legislation stipulates that should CPI go down for a particular year CPP benefits will stay the same and not decrease.
[vii] Bapoo v. Co-Operators (1997) CanLii 6320 (ONCA). This case dealt with an automobile insurance policy; however, the same principles should apply with LTD claims.