The reality of our legal system is that most long-term disability (LTD) claims are settled out of court before they can reach a full hearing in front of a judge.
A settlement offer from your insurer may mean the end of your long, exhausting LTD journey is in sight, but don’t rush the decision if you wish to capitalize on the advocacy and negotiation skills that have carried you this far.
An experienced Oakville long term disability lawyer can explain the pros and cons of settling and help you determine which options make the most sense. In the meantime, here is my list of the top five issues to consider when settling your LTD case.
1. Lump sum or reinstatement
All LTD settlements can generally be broken down into two types: a lump sum that takes into consideration all future benefit payments, or reinstatement of the benefits claim with potential payments for arrears owing. Each option comes with pros and cons, depending on the unique circumstances of your case.
For example, lump sum payments are generally more attractive to employees who have a good idea of when or if they will be able to return to work. Many also prefer the clean break they offer from an insurer who has previously denied their claim, although the payment typically comes with strings limiting their ability to make a future claim or forfeiting further coverage altogether.
Reinstatement of benefits puts claimants back in the position they found themselves before termination, which may be attractive for those whose health outlook is more uncertain. However, they also run the risk of another denial in the future if the insurer determines that they no longer meet the test for benefits.
2. Tax implications
Tax, as the saying goes, is one of life’s great certainties. The same is not entirely true of LTD settlements, although disability benefits are generally subject to taxation when the employer pays the premiums. Still, disability benefits can be characterized as non-taxable if the insured person paid all the premiums without any contribution from their employer.
For recipients of lump-sum settlements, the structure of your payments can also make a big difference to the amount of tax you will have to pay. If the money arrives at one time in a single payment, that could result in a large tax liability for the tax year in which it was received. However, some insurers may agree to amortize payments over a longer period to reduce the recipient’s income tax burden.
3. Strength of your case
Deciding whether to accept a settlement offer is an exercise in risk assessment. The stakes are high, and LTD claimants must remember that the onus is always on them to prove their case if it ever goes to trial. Regardless of how strong your evidence looks on paper, it is impossible to entirely discount the chance that a judge will rule against you. Deciding whether it’s worth accepting a settlement offer or proceeding with the litigation requires an honest and realistic evaluation of the strengths and weaknesses of your claim.
4. Benefits and pension
An LTD settlement can have knock-on effects for other benefits that claimants should not forget. For example, a lump-sum settlement in which the injured worker relinquishes their right to claim LTD benefits could make it easier for their employer to terminate them for frustration of contract if they cannot return to work. Termination could, in turn, put other employment benefits, such as dental and medical coverage, at risk, as well as the claimant’s access to any workplace pension.
In addition, benefit plans that include life insurance typically waive premiums for those receiving LTD benefits. However, the waiver would likely cease when LTD benefits stop, leaving the employee liable for premiums. Canada Pension Plan contributions also continue for as long as a person is on LTD, which means that a settlement should take into account the possible impact of any lost pensionable years on their entitlement in retirement.
5. The release
Before signing their settlement, LTD claimants should carefully review the terms of the full and final release to ensure that it accurately reflects the agreement reached between the parties.
It’s not unusual for insurers to draft a release that contains ambiguities or makes reference to items that were not mentioned during negotiations. For example, employees whose group LTD coverage formed part of a benefits package provided by their employer should pay particular attention to language conflating their LTD policy with the broader package of benefits since this could result in them giving up more rights than they agreed to.
If you’re considering an offer of settlement from your LTD provider, or you’ve just had your benefits terminated or denied, feel free to contact me or another long term disability lawyer at Edwards Pollard LLP.
