What Are Long Term Disability Benefits Offsets?

In the Long Term Disability Benefit context, offsets are other sources of employment or employment-like income.

long term disability benefits offsets

How Does It Work?

Insurers usually set up their insurance contracts such that they become the “payers of last resort”.  This means that other sources of employment income are deducted, or off-set from what the LTD insurer would otherwise pay.

An example may be helpful:

Suppose you have LTD benefits which pay you $5000 per month.  You become eligible for a pension or a medical retirement which pays $3000 per month.

The insurer will recognize this new source of income and reduce the former payment of $5000 to $2000 per month.  The employee will still have a monthly income of $5000, but it will consist of two cheques totalling $5000, of which the insurer will only pay the difference between the pension and the LTD amount.

Can the Insurer Force You to Apply for Long Term Disability Offsets?

The answer will depend upon the language of the particular insurance policy.  Frequently, the answer will be yes, particularly for such benefits as Canada Pension Plan Disability Benefits.  If the insured fails to apply for the CPPD benefits, the LTD insurer will deem them to have done so and will deduct the value of that benefit from the LTD which is owing.  In the case of CPPD, that value is approximately $14,000 annually. There may even be an obligation to appeal from a negative ruling concerning CPPD.

For benefits such as pensions, if a person is in receipt of a pension, that amount will likely be considered an offset and deducted.  If a person is not in receipt of a pension, whether they must apply for a pension will usually depend on the language of the insurance policy.

Can the Insurer Force You to Apply for Severance?

Severance, if obtained, is usually considered an off-set and deducted.  However, there are often substantial benefits in remaining an employee and it may not be necessary to provoke a termination of employment.