Two Steps Forward, One Step Back: Applying for CPP Disability when receiving Long-Term Disability Benefits

Many individuals who find themselves unable to work as a result of a serious injury or illness have disability benefits available through a group policy with their employer or through private coverage they have purchased independently. These policies typically provide 66.6% of your salary if the insurer determines that you meet the definition of disability as outlined in the contract. The initial test to qualify for disability benefits is the inability to perform the substantial duties of your own occupation (referred to as the “own occ” test). In most policies, that test will change at the two (2) year mark to the substantial inability to perform the duties of any occupation which you are reasonably qualified by education or experience (referred to as the “any occ” test).

Once approved, claimants begin to receive monthly benefits, however, they are surprised when shortly afterwards they receive letters demanding that they apply for CPP Disability. It is common that disability policies require the insured to apply for any other benefit that may be available to them. CPP Disability benefits often arise as they are a publicly funded benefit which are available to any individual who is under 65 years of age, has made the appropriate contributions, and meets the test for disability.

If the claimant is approved to receive CPP Disability benefits, they are even more surprised to learn that the funds they receive are “clawed back” or deducted from the disability benefits they are already receiving and that would otherwise be payable. Basically, short-term and long-term disability benefits fall second in priority to CPP Disability benefits as the policy permits the insurer to deduct the amounts received.

When claimants realize this, they question why they would go through the hassle of applying which appears to solely benefit the disability benefit provider – giving them a discount. In fact, often times when claimants are approved for CPP benefits and already receiving private disability benefits, they actually receive less than they otherwise would have.

A common reason why they may receive less in their pockets is the tax treatment of the benefit money they receive. CPP is a taxable benefit while most private disability benefits are not (depending on how the premium was paid). That said, only the net amount of CPP disability (after tax) should be deducted from the monthly disability benefit [see Bapoo v. Co-Operators General Insurance Co. (1997), 1997 CanLII 6320 (ON CA)]. Further, the disability provider is only entitled to deduct the initial qualifying amount and not the increased yearly amount (that is indexed for inflation) that the claimant receives in each subsequent year that they receive CPP Disability.

Sound like a bad deal?

Maybe at first glance, however, I still encourage clients to apply for CPP Disability. Here’s why:

To Remain Eligible for Benefits

As mentioned earlier, it is a requirement of the contract and claimants must do so to remain eligible for ongoing benefits. If they refuse to apply, the insurer could suspend or terminate their benefits.

It’s a win / win – even if the client is denied

The requirement is typically limited to “applying” for the benefit. This means that simply putting in an application would technically satisfy the contractual requirement – there is no obligation to seek the legal advice or have the application reviewed before it is submitted.

Once you have submitted an application for CPP Disability and are denied, the insurer does not get to make any deduction. There is no credit for anticipated or estimated benefits that might have been available to the claimant but not actually received. However, this may not always be the case so it is prudent to check the wording of your own policy.

The insurer also cannot compel you to pursue an appeal.

An approval is a persuasive consideration in the context of other claims

The test for CPP Disability is viewed as a more difficult test to meet than that for private disability – although it is not determinative, it is definitely persuasive. An approval for CPP Disability supports the client’s claim that they have a “severe” and “permanent” disability which prevents them from performing any gainful employment. This determination would also support a client in the context of a tort claim if they are injured due to a motor vehicle accident and are required to meet the statutory threshold.

An Approval for CPP Disability offers Added Security and Protections

When the claimant is in receipt of both CPP Disability as well as private disability benefits, they have added security. If one benefits is terminated, they are likely to continue to receive the other.

It is my experience that CPP Disability benefits are unlikely to get “cut off” once approved. They are much less volatile than private disability benefits.

In the long run, because the CPP benefit is taxable, it will increase the CPP retirement pension that the claimant will receive after they turn 65 years of age. You may also qualify for the Disability Tax Credit.

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In most cases, if you find yourself unable to return to work as a result of an injury or illness, applying to CPP Disability in addition to long-term disability benefits has many advantages. If approved, it can offer added peace of mind and financial security.

Michael Giordano
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Michael Giordano is a founding partner of Avanessy Giordano LLP. Prior to establishing his own practice, he was a partner of a prominent Mississauga personal injury firm.

He completed his law degree at the University of Ottawa. Prior to law school, Michael studied English and Law & Society at York University.

Michael is an active member of the Ontario Trial Lawyers Association and is the current Vice-Chair of the New Lawyers Division. He is a regular contributor to the OTLA blog and has also written for The Litigator.