When someone in Ontario is injured and unable to return to work, long-term disability (LTD) benefits often become a financial lifeline. These monthly payments help keep bills covered while the person focuses on recovery. But when a personal injury claim is later resolved—whether through settlement or trial—another question usually arises: Do you have to pay back the LTD insurer?
It’s a fair question, and the answer isn’t always straightforward. The key lies in understanding what your LTD policy says and what your personal injury settlement actually represents.
Most LTD policies in Ontario contain what are known as “deductible” or “offset” clauses. These clauses allow the insurer to recover or deduct certain types of compensation you may later receive. If part of your settlement is meant to reimburse you for income you lost because you couldn’t work, your LTD insurer may argue that they’re entitled to be paid back for the benefits they’ve already provided. Their position is that LTD benefits were meant to replace your income during that period, and if you later recover compensation for that same income loss, you shouldn’t receive it twice.
However, not all damages in a personal injury settlement relate to income. Settlements often include money for pain and suffering, for medical expenses, for future care, or for the challenges of maintaining a home while injured. These types of damages typically have nothing to do with income loss, and LTD insurers generally have no claim against them. This is why the structure of your settlement matters so much. A properly documented settlement will clearly distinguish between income-related losses and non-income damages, making it harder for the LTD insurer to claim repayment from funds they’re not entitled to.
Even when an insurer asserts a right to repayment, that doesn’t mean the amount they demand is final. Lawyers can often negotiate with LTD insurers to reduce the repayment figure, challenge the insurer’s interpretation of the policy, or dispute calculations that don’t align with the actual settlement. Sometimes the insurer may accept a lower amount simply to avoid a prolonged dispute.
Tax considerations can complicate matters further. For example, some LTD benefits are taxable while most personal injury settlements are not. When repayment calculations are made, it’s important to ensure that the numbers reflect the proper “net of tax” amounts. Otherwise, a plaintiff can end up reimbursing more than they should. A lawyer experienced in both personal injury and LTD matters can help ensure these details are handled correctly.
There are also situations where repayment should not be required at all. If your LTD benefits were improperly denied or terminated and you were forced to sue the LTD insurer, the compensation you recover in that lawsuit is fundamentally different from personal injury damages. You’re being compensated for the insurer’s breach of contract or bad faith, not for income loss resulting from your accident. In these circumstances, LTD repayment typically isn’t an issue.
Ultimately, every case involving LTD repayment is unique. The wording of the policy, the nature of the settlement, the medical and legal evidence, and even the negotiation strategy all play a role. Before accepting a settlement or agreeing to repay an LTD insurer, it’s important to understand your rights and the financial consequences of each decision. A carefully structured settlement can make a significant difference in how much compensation you ultimately keep.
If you’re navigating a personal injury claim while receiving LTD benefits, or if your insurer is asking for repayment, speaking with a lawyer can give you clarity and protect your financial recovery. It’s always better to understand your obligations before you’re asked to sign anything—especially when the stakes are high.
