Effects of closing off insurance and collecting severance

I have some interesting options at 61 upon suddenly having a chronic, life threatening illness. I am on LTD and approaching the 2 year mark. If I still qualify for LTD my understanding is that I may be asked to terminate my job in a few months and will hopefully be offered a severance. My insurance is entitled to some or all of my severance - not sure how this works. Question: If the severance was a substantial amount could I close off the insurance before receiving the severance (month before?) and not have to pay it out to the insurance company or would they be entitled to it anyway?

I think I read that companies typically wait 4 years before terminating an employee.
Great question though.
I’m interested in whether the insurance company gets all the severance money.

Hi Jammer
Thanks for your input.
I really don’t know how this works - who has control here I thought that if I decide to terminate that would be it but from what you are saying that may not be the case - Hmmm…
I hope that maybe one of the lawyers will respond to this question because it would make a difference in my decision making.

You do not have to terminate your position (quit) and in my opinion should not. It will be in your policy if the Insurer gets severance for the same period you were collecting LTD. Typically they can or get the majority as an offset.

If you are under a Union there may be provisions under that contract.

Many variables at play and the employer in a lot of cases can say that the contract of employment is frustrated by your illness and try to terminate without any severance. Employers from time to time try to reduce severance by the amount of the LTD payment.

Wrongful dismissal damages/settlements are typically not offset. I am not a lawyer-wait for a legal opinion-but they would likely require more info than you have outlined.

If I understand my policy correctly it says that severance pay, vocation pay and EI are not applied towards benefits (it says “excluding”).

See if your policy takes into concideration severance pay and go from there.

Your company may non necessarily terminate your employment in order not to look discriminative to your disability or age.

But somebody told me that you can ask to be terminated and negotiate a severance and other payments with your employer.

That would be my question: Can you ask to be terminated voluntarily by your employer with a severance pay?

That is great coverage. Is it just for the direct offset as usually there is a coordination of benefits/offsets that allows a larger percentage to be retained by the insured, Usually 85%. Whereas the direct offset is dollar for dollar from your monthly benefit.

Thanks for your reply. I am non-union and can collect my Hoop pension anytime but I have been holding off so that I can acquire a higher amount. I am only 61. I also have insurance that covers my contributions while I am off on LTD.
I was told that if I am still off and covered by LTD after the 2 year mark, my employers will check in with me and ask about whether I think I will eventually be able to return to work. (about 3 months afterwards) My condition is getting worse not better so I am guessing (unless a miracle happens) that I will not be able to return but I will tell them that I don’t know which is true. So after another 3 months, they will most likely want to terminate with me and I will be entitled to a severance. Since I have worked for almost 30 years this could be a sizeable amount. There are a lot of ifs at this stage but the best outcome if possible might be to cut my insurance, take my severance and pension and I am also waiting to see if I am approved for the CPP Disability.
If the insurance take most or all of my severance? Not sure how that is calculated then that will make a big difference my income. That is why I am asking this question as to whether I would have to pay the insurance company if I stopped it before I got the severance.

Hi Elaine
Thanks for your response. Each policy is different and mine definitely states that they can take my vacation pay and my severance if I get it.

I believe a strong argument can be made that severance ought not to be deductible from a disability
benefit payment absent clear language within the insurance policy that expressly
provides for such an offset. Check your policy and see if it specifically has severance under the offset.
Mine does-but not all do.

Hi Allyoops
My policy is very clear about the insurance having the right to take my severance.
It was explained to me that the employer buys the policy and they can choose an old run down car or a mercedes - depends on what they are willing to spend and that determines these clauses.

Then it seems your best course may be to not rush to be offered severance right away and maximize LTD as long as you can. You can always stop collecting LTD. However if you feel that there is a chance of your death you might not want to delay.
I think after a free consult its only $50 per 15 minute call with a lawyer. That is a really fair price. Check google too :blush:

Thanks for your input
I have no control if and when my employers might offer me severance, So If it is offered I would really like to know if I can stop my insurance and keep it.

My understanding is that the insurer will not include severance pay in any calculations at all.

I even had a thought to be terminated voluntarily with a severance pay. Not sure how it works. Will it complicate my LTD case if I choose to leave my current employer? The insurer may think that I have no intention to return to my previous employment.

I would wait until you get a decision from CPP-D. If approved then that would be a valid reason for termination. You must have a large employer to have guaranteed severance pay. For frustration of the employment contract and employer is not obligated to pay severance-unless in your employment contract.

There was a case somewhere on the internet where a claimant sued his insurance over a severance pay. They argued that the severance pay he had received was applicable to his previous years served at his job before him being on LTD. Which makes total sense.This is one thing to consider.

Anyways it is always good to obtain some legal advice.

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I guess it is time to request my personal file and an employment contract from my employer :thinking:

That makes sense to me but I think what overrides this is if this is listed in the contract negotiated between my employer and the insurance company and it is listed including my vacation pay.

I am throwing out a lot of what ifs here as well. I don’t think it is a given that my employer gives out a severance pay but the HR person stated that this would be the process if I continued to not be able to return to work and was covered by LTD. The time frame is around 3 years which would be Feb 2019.
So my HR person mentioned a severance.

Whether severe is deductible will depend cases to case based on each insurance policy. You can settle LTD claims BEFORE taking severance or retiring (which can also close out LTD) and we do this all the time. The problem here is a mater of timing. If your LTD Insurer is paying you then they have zero incentive to do a settlement with you in the meantime. If you ask about it, it will send off alarm bells and they definitely won’t do it. The only time this can work is if you are already denied and suing insurance company and can reach a settlement before severance or retirement happens.

If you take a severance the LTD plan would adjust and they might not owe you payments for awhile, but they would possibly kick back in once the severance period is over. Whenever you do these types of termination agreements you need to make sure any Release you sign against your employer DOES NOT give away your rights to later sue the Insurer if they cut you off later on.

I really can’t be more specific in my answer in a forum, this is a complex situation and you would need to seek individual legal advice.

David Brannen

Disability Lawyer with Resolute Legal

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Thank you so much David. Wow, I did not realize how complicated this is. I naively thought I could just cancel the insurance at the right time - end of story and then would be on my own to hopefully be offered a severance as the HR person reported, take my retirement and possibly my CPP-D if approved. This shocks me. It seems so unfair to have to use up my severance (if I get it). This really helps me prepare and understand things more. This whole business is so complicated especially if like me your client has “fog brain” I have had to do a lot of phone calls and checking things out on my own upon often feeling very unwell. What happens within the next year and the decisions I make are very crucial to my financial health never mind my emotional/physical health. I was hoping that I could use that extra money to pay off some debt I still owe which is now a real challenge upon being on almost !/2 of my salary. However, since I would be taxed on it, I also thought about using it up as income and staving off my retirement for a couple of years. So maybe I can hope it is used, along with my CPP-D to cover me. After that runs out they will continue to support me up until I am 65. Also, my prognosis right now is not so hot so I need to do the right thing for me and my siblings. Thanks again!