Long-term disability (LTD) insurance is a financial safety net for individuals who are unable to work due to illness or injury. While these benefits allow for monthly payments, some claimants may be offered a lump-sum buyout as an alternative. Knowing the outcomes of accepting a buyout, negotiating the best settlement, and knowing how CPP disability benefits affect your LTD claim are all essential to securing your financial future.

A buyout offer may seem attractive, but it is essential to determine whether it meets your long-term needs. Factors such as taxation, future medical expenses, and potential return to work should be considered before making a decision. Furthermore, when appealing a denied LTD or CPP disability claim, you’ll want complete documentation and legal expertise.

It’s important that your lawyer has experience in advocating for claimants in long-term disability disputes, such as negotiating buyouts and appealing denied claims. At Vice & Hunter, we know the challenges of disability benefits and it’s our role to protect your rights. If you’ve received a buyout offer or have been denied Canada Pension Plan (CPP) disability claim, you’ll want a good lawyer behind you.

Why Consider an LTD Buy-out?

A long-term disability buyout is a lump-sum settlement offered by an insurance company in exchange for effectively ending ongoing monthly LTD benefits. So, instead of receiving benefits indefinitely or until retirement, you are given the option of accepting a one-time payment to resolve the insurer’s obligation to continue paying out your claim. It’s almost certainly lower than the overall amount, but gives you a lump sum up front which, for many, is a more desirable option.

Insurers typically propose buyouts for several reasons, including:

• Reducing their long-term financial liabilities.
• Minimizing their administrative costs.
• Offering claimants financial flexibility, such as providing a lump sum for investment.

While a lump-sum payment may seem attractive, it’s essential to approach buyout negotiations carefully. The initial offer is usually much lower than the total amount you might receive over time and, once accepted, you’ll forfeit any future LTD benefits related to that claim. This is why you don’t necessarily want to accept right away, and why you might want a lawyer present!

Important Things to Ask for LTD Buy-outs

1. What should the full value of your claim be?

The first step in evaluating a buyout offer is determining the total amount of LTD benefits you would receive if you continued to receive monthly payments. This calculation includes:

• The number of months remaining until the LTD benefit period ends (often at age 65).
• The impact of inflation.
• Potential cost-of-living adjustments.

2. What are the value adjustments used by the insurer?

Insurance companies calculate buyout offers using a present value formula, discounting future benefits to reflect their current worth. However, insurers often undervalue claims to protect their financial interests. Legal guidance ensures you receive a fair valuation.

3. Are there any other benefits (including CPP Disability)?

Your LTD insurer may offset your monthly LTD payments by the CPP amount if you are receive or have applied for CPP disability benefits. This can affect the total buyout offer. It’s possible that your insurer may also insist that you apply for CPP disability as a prerequisite to a buyout.

Visit the Government of Canada’s CPP Disability Benefits page for more info on how CPP disability benefits affect LTD claims, 

4. What are the tax implications of the buyout offer?

LTD benefits are taxable if your employer paid the premiums but tax-free if you paid for the policy. A lump-sum buyout may have different tax consequences, which is why it’s a good idea to consult a lawyer or tax professional.

5. Do you have a second set of eyes reviewing everything, ideally a lawyer?

Insurance companies aim to settle for the lowest possible amount. With legal representation, you gain leverage in negotiations, ensuring a higher and fairer settlement offer. Oftentimes, the increase in offer with a lawyer present more than covers the cost of hiring one.

When can CPP Disability Benefits Lead to a Buyout

Many LTD insurers require claimants to apply for CPP disability benefits to offset the insurer’s costs. If approved, the insurer will deduct the CPP payments from the LTD benefits.

However, in some cases, approval for CPP disability benefits can increase the likelihood of a buyout offer. Since the insurer’s liability is reduced due to CPP offsets, they may be more willing to settle the remaining LTD benefits in a lump sum.

A lawyer can help you through this process in a few different ways. Firstly, they help ensure your CPP disability application is strong and well-documented. Secondly, they are there to negotiate with insurers to maximize your buyout offer. And finally, they are there to protect your rights if an insurer attempts to pressure you into a settlement. They approach all interactions with a legal mindset.

Appealing a Denied CPP Disability Claim

If your CPP disability application is denied, you have the right to appeal. A denial does not mean you are ineligible—it often means that more evidence is needed to prove that your condition meets CPP disability criteria.

If you have been denied CPP Disability, there are a few steps you can take to tilt the scales back in your favour. You can request a reconsideration from Service Canada within 90 days from the denial date, by submitting additional medical and vocational evidence. Barring that, you can appeal to the Social Security Tribunal of Canada for a hearing before an independent adjudicator. And if those two steps fail to resolve the issue, you can seek legal assistance. An experienced disability lawyer can present a strong case, gather medical evidence, and represent you in tribunal proceedings.

Why You Should Use a Lawyer

Both LTD buyouts and CPP disability appeals involve complex legal and financial considerations, let alone the emotional investment. Without experienced legal counsel, claimants risk accepting unfair settlements or missing critical appeal deadlines. At Vice & Hunter LLP, we advocate for individuals facing disability disputes, ensuring they receive the benefits they are entitled to.

If you’re considering a lump-sum buyout, need help negotiating with your insurer, or want to appeal a denied CPP disability claim, contact Vice & Hunter LLP today for a consultation. Our team is committed to securing the best possible outcome for your case.

This information is for general purposes only and should not be considered legal advice. For personalized assistance, consult a qualified lawyer.