Understanding Long Term Disability Deductions

June 12, 2025

Life rarely moves in a straight line. It twists, detours, and sometimes it throws up a roadblock, like an illness or injury that takes you off the job. For many Nova Scotians, long-term disability (LTD) benefits provide critical financial support during these difficult chapters. But what often surprises people is how those benefits are calculated… and, more specifically, reduced.

This article takes a realistic, plain-language look at long term disability deductions in Nova Scotia—what they are, why they exist, and how they can shrink the amount you ultimately receive. You’ll also find guidance on offsets, tax implications, and what to do if things go sideways with your insurer.

And while this might sound like a dry topic, it’s anything but. These deductions can mean the difference between being able to pay your mortgage or falling behind. Between managing your recovery or stressing about finances. So, let’s break it down. Not perfectly. Not with all the answers in a neat row. But honestly, and in a way that helps you feel a bit more in control.

What Are Long-Term Disability Deductions?

Long-term disability deductions are reductions in the monthly benefit amount based on other sources of income a claimant receives. These deductions aim to prevent overcompensation while still offering financial support.

What Deductions Apply to My Long Term Disability Benefits in Nova Scotia?

Here’s where things get messy. Most people assume that if they qualify for LTD benefits—whether through a private insurer or a group plan—they’ll receive a fixed monthly amount until they recover or reach retirement age. But it’s not quite that simple.

Let’s say your policy promises 60% of your pre-disability income. That’s your gross benefit. But your net benefit might be less—sometimes significantly—because of various deductions, including standard LTD offsets written into most group and private policies.

Here are the most common ones:

1. Canada Pension Plan Disability (CPP-D) Benefits

If you qualify for CPP-D, your insurer will almost certainly deduct that amount from your LTD payments. Let’s say your insurer owes you $2,000 per month, and CPP-D pays you $1,000. The insurer now only pays the difference—$1,000. The total income doesn’t change, but where it comes from does.

Here’s the kicker: even if you haven’t yet applied for CPP-D, your LTD insurer may require you to do so. Some even reduce your benefits in advance, assuming you’ll get approved eventually. And if you’re denied? You may be expected to appeal, sometimes multiple times. These CPP disability deductions are often mandatory under most LTD policies, and they can significantly reduce the insurer’s share of your monthly benefit.

2. Workers’ Compensation Benefits

If your disability stems from a workplace injury or occupational illness, and you qualify for Workers’ Compensation, this will likely reduce your LTD benefits too. Again, the logic is the same: multiple sources of income should not result in a “windfall.” That’s the insurer’s perspective, at least.

3. Other Income Sources

This is a bit of a catch-all category, and it can get a little grey. LTD policies often deduct income from:

• Severance packages
• Vacation or sick leave payouts
• Employer pensions
• Short-term disability (STD) top-ups
• Third-party settlements (in the case of lawsuits, like a car accident claim)Each policy has its own rules. Some are straightforward. Others? Vague. And if there’s room for interpretation, chances are your insurer will interpret in their favour.

How Deductions Affect the Amount of LTD Benefits Received

It’s not just about what deductions exist. It’s about when and how they’re applied.

Let’s look at a realistic example:

• Your LTD benefit is 60% of your salary, and you earned $4,000 per month before the injury.
• That means you’re entitled to $2,400/month.
• Then you’re approved for CPP-D at $1,100/month.
• Your insurer now pays $1,300/month instead of $2,400.

This is called a direct offset, where the insurer reduces their portion dollar-for-dollar based on your new income source. These types of LTD offsets are standard in many policies, but the exact calculation methods and timing can vary from one insurer to another.

But what if you don’t qualify for CPP-D, even after several attempts? What if you’re stuck waiting months for a decision? Or what if the insurer makes an error in how they calculate your offset amount?

These situations aren’t rare. Many LTD recipients find themselves underpaid or even overpaid (which leads to repayment demands later). Worse, some benefits get delayed entirely while these calculations get sorted out.

So, while LTD is meant to be a safety net, it can feel more like a tightrope walk, especially when your financial security is hanging in the balance.

Understanding Offsets in LTD Policies

Now let’s talk a bit more about offsets. What are they really, and how do they work?

What Is An Offset In A Long-Term Disability Claim?

An offset is a clause in LTD policies that allows insurers to reduce benefit payments based on other income a claimant receives, and it often works alongside disability insurance tax deductions and other financial adjustments written into the policy.

Offset Clauses in LTD Insurance Policies Explained

These clauses are usually buried deep in your policy paperwork, often in legalese that feels intentionally confusing. But they matter.

Here’s what they usually include:

• A list of income sources that will be deducted
• A requirement to apply for certain benefits (e.g., CPP-D)
• Language about anticipated income—yes, even future payments can affect today’s benefits
• Details about repayment if you receive a retroactive lump sum (such as a CPP-D payment that covers the past year)

It’s not uncommon for people to receive a lump sum CPP payment for retroactive months, only to be told they owe their LTD insurer thousands of dollars in back-pay. That can feel like getting punished for finally receiving help. And yet, it’s all in the fine print.

To make matters more frustrating, these policies vary widely. One person’s plan might deduct severance pay. Another might not. Some may reduce benefits for vacation payouts or legal settlements, while others are silent on those topics altogether. Even the language used—“income,” “compensation,” “benefits”—can differ just enough to create uncertainty.

The only way to know for sure? Dig through the policy. Or, better yet, have a lawyer do it. Because when your monthly livelihood depends on the fine print, it’s worth getting expert eyes on the details before surprises come knocking.

Tax Implications of LTD Benefits in Nova Scotia

This is a short but important note: some LTD benefits are taxable, others are not. It depends on how the plan was funded.

• If you paid the premiums, the benefits are generally not taxable.
• If your employer paid, they likely are taxable.

For a full breakdown, visit this helpful article.

Common Challenges and How to Address Them

It would be great if every LTD case went smoothly. But that’s not reality. Issues arise—often.

Disputes Over Deduction Amounts

Sometimes, the disagreement isn’t whether a deduction applies. It’s how much. Or when. Or for how long.

Say your insurer deducts $1,200/month for CPP-D, but you’re only receiving $1,000. That $200/month difference adds up. Worse, getting the insurer to fix the error can take weeks or longer.

Tip: Document everything. Get written breakdowns. Save emails. Keep copies of all decision letters. If it’s not written down, it’s much harder to challenge.

Delays in Benefit Payments Due to Offset Calculations

Another common headache? Delays caused by back-and-forth calculations. The insurer is waiting for CPP approval. Or your Workers’ Comp claim is still under review. Or they’ve “lost” paperwork.

Meanwhile, the bills keep coming. Some claimants try to bridge the gap with personal savings. Others borrow from family. A few fall into debt. And all of this—stress, uncertainty, financial strain—can make recovery even harder.

What You Can Do

So, what now? Maybe you’re just starting an LTD claim and want to get ahead of the curve. Maybe you’re already receiving benefits, and something doesn’t seem right. Maybe you’re being told you owe money back, or you’re not getting clear answers when you ask your insurer for an explanation.

Whatever the case, it’s important to take action early—before a small issue turns into a major problem. Here’s what we’d suggest:

1. Review Your Policy

Yes, it’s boring. Yes, it’s confusing. But the fine print matters. If you can’t make sense of it, you’re not alone. Most people can’t, and that’s often by design. LTD policies are written in dense legal language, but buried in there are the rules that determine how your benefits are calculated and what deductions may apply.

2. Keep a Paper Trail

Every form. Every email. Every letter. Keep it. And organize it—whatever system works for you. When disputes arise, documentation is your best friend. If someone says you were notified of something and you weren’t, having proof can protect your rights. Even jotting down notes from phone calls—who you spoke to, when, and what was said—can help if things go sideways later.

3. Apply for All Required Benefits Promptly

Even if it feels redundant. Even if you’re tired of paperwork. If your insurer requires you to apply for CPP-D or Workers’ Comp, dragging your feet can hurt your claim—or even lead to reductions before you’ve received any extra income. Keep copies of all applications and responses, and follow up regularly so nothing gets lost in the shuffle.

4. Don’t Assume the Insurer Is Always Right

They make mistakes. And unfortunately, those mistakes usually don’t work in your favour. If something doesn’t add up, ask questions. Be persistent. Don’t let vague or delayed responses slide—press for clarity. You’re not being difficult; you’re protecting your financial well-being.

5. Talk to a Lawyer Who Handles LTD Claims

This stuff isn’t just technical. It’s personal. It affects your ability to heal, to support your family, and to feel secure. And you shouldn’t have to navigate it alone.

A lawyer familiar with LTD deduction disputes, offsets, and insurance practices in Nova Scotia can:

• Review your policy and calculate proper benefit amounts
• Communicate with the insurer on your behalf
• Challenge wrongful deductions
• Help you access back-pay or compensation if you’ve been underpaid
• Give you peace of mind when the paperwork and red tape become overwhelming

Whether you’re stuck in appeals, confused by your LTD offsets, or just need a second opinion, legal guidance can be the difference between surviving and sinking.

Contact Preszler Injury Lawyers for Assistance with Your LTD Claim

If you’re struggling to understand your LTD benefits—or you believe your payments aren’t what they should be—Preszler Injury Lawyers can help.

We’ve worked with countless Nova Scotians facing confusing LTD deductions, CPP offset disputes, tax uncertainties, and more. And we understand how these challenges impact real lives—not just on paper, but in kitchens and living rooms across the province.

Reach out today for a free consultation. We’ll listen, review your case, and explain your options clearly—no pressure, no jargon.