Do I Need To File A Separate Claim For Life Waiver
For policyholders that have both LTD and Life coverage through Sun Life, coordination of disability information occurs.
When a claim is received that has both LTD and Life coverage, our Disability Claims Professional advises the Sun Life’s Life Department and copies them on important documentation.
Dont Count On Social Security
A few individuals do manage to qualify for disability benefits from Social Security. However, the Social Security definition of disability is so strict that, in 2017, only 36.1% of initial claims for Social Security disability benefits were accepted.2 Obviously, something else beyond Social Security is needed.
Employment Insurance Sickness Benefits
The Employment Insurance program offers temporary financial assistance to people unable to work because of sickness, injury or quarantine. These benefits are usually the first benefits received by an employee after they have exhausted their sick leave and they are unable to return to work because of continued injury or illness.
Employment Insurance benefits are taxable, which means that federal and provincial taxes will have been deducted from your EI payments prior to receipt. Depending on your total income for 2020, you may be required to repay a portion of EI benefits received when you file your taxes.
If you were in receipt of EI benefits, you will receive a T4E, Statement of Employment Insurance and Other Benefits slip, which will indicate if you are required to repay a portion of the EI received. The T4E is issued by Service Canada.
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Canada Pension Plan Disability Benefits/ Qubec Pension Plan Disability Pension
The CPP disability benefit and QPP disability benefit are available to assist people who are unable to work in any capacity due to severe and prolonged disability. If you have qualified, and are receiving Canada Pension Plan Disability Benefits or Quebec Pension Plan Disability Pension, you should be aware that these benefits are taxable income. All the amounts received from CPP or QPP must be reported in your tax return.
You would receive a T4A Statement of Canada Pension Plan Benefits tax slip at the beginning of the year if you received benefits from the CPP or the QPP. The T4A will indicate the amount of benefits you received in the previous year. If you received QPP benefits, you would also receive a RL-2 Relevé 2: Retirement and annuity income slip.
Contact Chisholm Chisholm & Kilpatrick Ltd
At Chisholm Chisholm & Kilpatrick LTD, our team of experienced attorneys and professionals can help you secure your long-term disability claim. Although CCK does not offer tax advice, we can help make sure your long-term disability claim is being handled fairly and manage your claim for you so that you do not have to deal with the insurance company. Contact us now at 800-544-9144 for a FREE consultation to see if we can help you with your long-term disability claim.
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Offsets And Integration Of Benefits
Its common for insurance companies to reduce your disability benefit if you get other payments. In other words, they offset their payment usually dollar-for-dollar. For example, lets say you get a CPP disability payment of $900 per month. In this case, your insurance company reduces their payment by $900 per month.
Other offsets include money you get from workers compensation, personal injury settlements, severance payments, or CERB payments, to name a few.
To read more about the steps you can take when your insurer has overpaid you, read our article: LTD Overpayment because of CPP Disability Retroactive Payment: What are my options?
What Medical Conditions Qualify For Long
Almost any illness or injury can qualify for long-term disability. Insurance companies dont approve claims based on a diagnosis. Rather, they focus on the disability caused by your medical condition.
Its possible to have a serious diagnosis but not be disabled. For example, you may consider the diagnosis of Multiple Sclerosis to be very serious. However, many people with MS arent totally disabled. At least, not right away. So, insurance companies deny many disability claims for MS. The reason for denial is because the symptoms are not serious enough yet.
So, your diagnosis alone wont get you approved for benefits. However, insurance companies do want to see a solid diagnosis. This is because a diagnosis will shape your treatment plan. And your insurance company will only approve your claim if you have a treatment plan. Moreover, it cant just be any plan. They have to agree with it.
If they dont agree with your treatment, then they can deny your claim or stop your payments.
Check out these articles on disabling medical conditions to learn more:
It Comes Down To Whether Premiums Are Paid With Pre
Generally, whether you pay long-term disability benefit premiums with pre- or -post-tax dollars is largely what determines if your long-term disability benefits will be taxable. Be aware of how you are making your payments, of your plans policy, and what portions of the payment you are responsible for.
If your long-term disability benefits are taxable, there are tax forms you can submit to the insurance company to have them withhold taxes from your monthly disability benefits so that you will not owe taxes later. An accountant or other tax professional can help you determine how much you should withhold.
Health Resources For People With Disabilities
Federal, state, and local government agencies and programs can help with your health needs if you have a disability.
Explore the Disability and Health section of CDC.gov for articles, programs, tips for healthy living and more.
Learn more about assistance and benefits for people with disabilities from the Social Security Administration.
Contact your local city or county government to find out what medical and health services are available locally for people with disabilities.
Your state social service agency can help you locate medical and health programs.
Visit USA.govs Government Benefits page to learn more about government programs and services that can help you and your family.
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What Is The Best Option
So, is it more profitable to go with taxable or non-taxable disability benefits? Generally, in Quebec, when employers want to maintain the same contribution to the total cost of their group insurance plan in either case, going with taxable disability coverage is more profitable for everyone. As employer-paid premiums for health and dental coverage are a taxable employment benefit in Quebec whereas employer-paid long-term disability premiums are not, it is indeed more tax-effective for an employee to have the employer pay for long-term disability insurance rather than for health/dental coverage. However, the precise answer will depend on the replacement formulas used and the salaries of the employee groups covered.
In the other provinces, the health/dental premiums are not taxable, and the most profitable option is generally the opposite, i.e. non-taxable long-term disability insurance.
Choosing the right type of long-term disability benefits is not always easy. If you are wondering what would be the best option for you, contact your AGA Advisor who will analyze the overall picture of your group insurance plan and recommend the course of action most suited to your situation!
The Individual Need For Disability Insurance
Provided by Advisys, Inc.
Individual Disability Insurance is a viable option instead of employer group disability or Social Security.
Many people believe that their biggest asset is their home. For most of us, our biggest asset is the ability to work and earn an income. Not being able to work due to a job loss or a disability having taken away the ability to work is often financially devastating.
Everyone who works for a living is familiar with what can happen if they lose their job. On the other hand, the possibility of a serious disability is a risk few seem to consider. How likely is it that you will become seriously disabled? According to one study, 30% of all Americans between the ages of 35 and 65 suffered a disability lasting at least 90 days.1 The risk is real. The question is, What to do about it?
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Irs Tax Reporting Guidelines For Disability Benefits
The IRS website is not the easiest to navigate. The following links are to current IRS publications regarding disability insurance taxation.
Tip: The IRS classifies both short-term disability and long-term disability insurance benefits as sick pay. IRS home page:
And specifically regarding disability insurance taxation:
Spreading Out Social Security Backpay To Lower Your Taxes
One bright spot is that the IRS allows disability recipients to apportion disability backpay to previous years’ tax returns, which often lowers or eliminates the taxable portion of the lump sum. Moreover, disability recipients need not file amended returns for previous years the situation can be addressed on one’s current tax return. For more on this method, consult IRS Publication 915: Social Security and Equivalent Railroad Retirement Benefits. In practice, most individuals and couples whose only income comes from disability benefits will face little to no taxes if their lump sum is apportioned to previous years.
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When Benefits Are Non
The flip side features a similar tradeoff. When you pay the premiums for your own long-term disability insurance, you do so using after-tax dollars. In other words, you dont get to reduce your income tax to account for the amounts you paid for disability insurance.
On the other hand, when you receive disability benefits under an insurance policy for which you paid all the premiums, those benefits are generally not taxed.
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Is Long Term Disability Taxable If You Accept A Long Term Disability Lump Sum Settlement
You might get offered a lump sum settlement for your long term disability benefits rather than intermittent payments. This means that you would receive your entire disability benefit in one payment. In cases like these, whether your lump sum is taxable depends again on whether you pay with pre or post-tax dollars. If it is, youll, unfortunately, see your sum total reduced significantly by taxes.
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Is The Canada Pension Plan Disability Benefit Taxable
Beyond private insurance, disabled Canadians can apply for the Canadian Pension Plan Disability Benefit. The CPP Disability Benefit is taxable and must be reported on your tax return. This benefit helps make up for lost earnings if you meet the criteria as defined by Service Canada.
You may be eligible for this benefit if you are:
- Under 65 years old
Tiered Formulas Used For Non
- When selecting the disability benefit calculation formula, it is crucial to consider the salaries of the employees to be covered. A formula where the 85% income replacement objective is reached for employees with an average salary of $40,000 will not bring about the same outcome for high-income earners. Some employees could even end up paying for benefits to which they will never be entitled.
- In most contracts, a maximum of 85% of the salary applies to the calculated disability benefit. This ceiling could prevent a disabled employee from receiving the full benefit for which he/she paid premiums.
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Disabilities And Illnesses Covered By Long
Here are several illnesses and disabilities that may be covered by your LTD insurance, but do check your policy to confirm:
- Gastrointestinal issues such as Crohns disease, irritable bowel syndrome and colitis
- Chronic fatigue syndrome
- An accident on the job
To truly know whats not covered by LTD insurance, check your policy or consult your broker. There may be some situations where legal help can clarify whether your medical situation qualifies you for long-term benefits. Well get into legal issues shortly.
Why Was No Fica Withheld Why Did Fica Withholding Stop
We are required to withhold FICA taxes for the first full six-month period following the last day the claimant worked for the policyholder. If Sun Life’s first payment is made after the conclusion of this six-month period, FICA taxes will not be withheld. Payments made within this six-month period will be subject to FICA. Any payments made after this six-month period will not be subject to FICA, unless the claimant returns to work for the policyholder in any capacity.
IRC regulations require FICA withholding from benefit payments issued within the first full six months following the last day worked for the policyholder. However, once this six-month period has ended, no FICA is withheld from benefits paid unless the claimant returns to work for the policyholder in any capacity.
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Is Long Term Disability Taxable
Working with long term disability can be baffling, and adding tax considerations into the mix wont make it any easier. Long term disability is necessary for people who are unable to work for an extended period of time due to a disability. However, are these financial benefits taxable? This blog will go over key information on long term disability and whether or not it is taxable.
How Is The Benefit Amount Calculated
LTD benefits are paid on a monthly basis, so we must begin by considering the claimant’s eligible monthly earnings as of the benefit determination date in these same terms. Both the eligible monthly earnings and the determination date are defined by the policy.
If the claimant is an hourly employee, we will multiply the hourly rate by the actual number of hours worked per week to get the weekly rate. Then the process for converting a weekly rate is followed.
If a weekly rate is reported, we multiply it by 52 to obtain an annual amount and then divide by 12.
If a bi-weekly rate is reported, we multiply by 26 to obtain an annual amount and then divide by 12.
If the claimant is paid semi-monthly, we multiply this amount by 2.
For salaried employees, we divide the annual salary by 12 to get the monthly rate. If the employee works less than 12 months , the policy may provide for a different calculation.
The Schedule Amount of insurance is calculated by applying the benefit rate to the insured’s eligible monthly earnings as of the benefit determination date. After multiplying the eligible monthly earnings by the benefit rate, the product is rounded as specified by the policy, generally to the nearest dollar.
The Schedule Amount can also be a flat amount, such as $1000.00 per month. This is most often seen in voluntary plans where the employee chooses a multiple of $100.00 up to a specific maximum, expressed as a percentage of the employee’s salary.
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Disability Insurance Benefits And Taxes
Generally, if you pay the entire amount of the disability premium yourself, your disability benefits will be tax-free. This may bring your income while on disability closer to your current take-home pay.
If your employer pays all or part of the disability premium, your disability benefits will be subject to income taxes.
Can You Still Earn An Income
Depending on the type of policy you have, you may be able to purchase less coverage, meaning your long-term disability insurance will pay you less when you become disabled. ThatÃ¢s possible if you have an own-occupation long-term disability insurance policy, which means that you only need to be so disabled that you canÃ¢t work at your current or most recent job. Own-occupation policies are more expensive because they that have a higher likelihood of paying out however, youÃ¢ll be able to work another job that youÃ¢re qualified for and still get paid disability benefits.
The opposite of an own-occupation policy is an any-occupation policy. This type of policy pays disability benefits only if you canÃ¢t work at any job. This is a much stricter definition of disability to meet, so any-occupation policies have lower premiums, but may not offer the amount of coverage you need.
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Group Disability Insurance Policies
If you are one of the millions of Americans with an employer-provided long-term disability insurance policy, then the taxability of the benefits would be based on who pays the premiums.
If the employee pays the premiums using after-tax income, benefits are tax-free. However, if the employer pays the premiums, benefits are taxable. If you and your employer split the premium costs, you will also split the tax liability.
This means that only the benefits that can be attributed to the employer-paid portion of the premium are taxable, while benefits attributed to your premiumpaid with after-tax dollarsare tax-free.
However, taxability differs if youthe employeeuse pre-tax dollars to pay your portion of the premiums. For example, if you use money earmarked in a medical reimbursement or cafeteria plan to fund the premium, your disability benefits are taxable.
Do I Have To Pay Taxes On Cpp Disability Benefits
Yes, the CPP disability benefit is taxable income the monthly payments and the retroactive benefits. This means you could owe money on your next tax return.
If you think you may have taxes to pay, you might want to consider putting some extra money away to cover that when it comes up. There are some things you can do to reduce the taxes and prevent any big tax bills keep reading to find out!
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What Qualifies For Long
The qualifications for long-term disability are usually more stringent than those for short-term disability. With short-term disability, benefits can be awarded if the employee is unable to do their job. With long-term disability, benefits will typically only be awarded if the employee is unable to do any job. What constitutes a qualifying event will be specified in the policy, so it is important to understand when benefits may apply before accepting a long-term disability policy.
Qualifying events may include chronic pain, cancer treatments, or debilitating illness or injury lasting more than 26 weeks. If an employee could qualify for another form of income replacement, such as Social Security Disability Insurance, the long-term disability policy will no longer provide benefits.