Long-term Disability (LTD): The Importance of Obtaining Canada Pension Plan (CPP) Benefits and the Tests in Acquiring Them
While it is possible to collect both long-term disability (LTD) and Canada Pension Plan (CPP) payments at the same time, many LTD plans state that you may not use both benefits to create a larger sum.
What Are the Differences Between LTD And CPP Disability Benefits?
While private insurance companies offer LTD insurance plans, typically through employers, CPP is operated by the Canadian government. Both plans provide a support system for injured workers.
A. CPP Process
Workers who contribute to the government-administered CPP through payroll deductions may be entitled to CPP benefits when they are injured and may be unable to work. In order to qualify for CPP disability benefit, you must:
- Be under 65 years old
- Have a disability that is long-term and of indefinite duration, or is likely to result in death
- Have a physical or mental disability that regularly prevents you from doing any type of substantially gainful work
- Have made CPP contributions by working at least four out of the last six years, or three out of the last six years if you have contributed to CPP for 25 years or more
B. LTD Process
In order to figure out whether you qualify for LTD benefits, it is important to read the details of your plan and instructions in their application process. Each LTD has different standards for what types of conditions they cover and which they do not. Under most LTD policies, if you are receiving LTD benefits, your insurance provider will probably require you to apply for CPP so that they can deduct the CPP benefits from the amount they are required to pay through LTD.
Reasons You Should Apply for CPP Benefits Even If You Are Already Getting LTD Insurance Benefits
1. Approval for CPP disability benefits increases your odds of continuing to receive LTD insurance benefits
It is possible for your insurance company to stop payment of your disability benefits, even if you are genuinely disabled. Consequently, being found totally disabled by the CPP disability program makes it harder for your insurance company to dispute your claim. In addition, a CPP disability approval will reduce the insurance company’s financial obligation to you. As a result, both of these factors weigh in favour of the insurance company continuing to pay your monthly benefits if you are unable to work.
2. CPP disability is a good safety net
Once you are approved for CPP disability benefits, the program is not as ruthless as private insurance in terminating payment. Furthermore, if your insurance company stops payment of LTD benefits, you will continue to receive your CPP disability benefits.
3. Potential reduction of your monthly LTD insurance benefits
Many disability insurance policies give insurance companies the ability to reduce your LTD benefit if you do not make a good faith effort to get approved for CPP disability benefits.
4. Winning CPP disability payments can result in you getting a higher CPP retirement pension when you turn 65
You don’t get a penalty for non-contribution to the CPP program while you are receiving CPP disability. As a result, if you do not apply for CPP disability, you will get assessed as making a zero contribution for each year going forward.
5. Allows for you to keep the CPP inflation increases
Most disability insurance policies continue to deduct only your original CPP payment amount. Therefore, you will get to keep the annual inflation increase to your CPP disability payment.
6. Provides the ability to reduce or eliminate the unexpected tax bill for the retroactive CPP payment
There are ways you can reduce or eliminate a tax bill caused by a CPP disability retroactive lump sum payment. For example, you can apply for the disability tax credit, which, upon approval, could eliminate any tax owing.
Receiving CPP disability benefits can give you financial security and result in a higher CPP retirement payment.
Representation in a Disability Case
If you need assistance in interpreting the fine print of your policy, or you are having any trouble in receiving the full benefits you think you deserve, then it might be a good idea to speak with a disability lawyer.