Disability policies do not pay 100 percent of pre-disability income. Benefit maximums typically cap benefits at 60 to 85 percent of pre-disability income, including all sources of replacement income. This intentional gap preserves the financial incentive to return to work.
All-source maximum: when a claimant receives multiple income-replacement benefits simultaneously (group LTD, CPP disability, workers' compensation), most policies contain an all-source maximum clause. If the combined benefit from all sources exceeds the policy maximum, the insurer reduces its payment to bring the total to the cap.
Integration with CPP/QPP disability benefits: many group and some individual policies require the insured to apply for Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) disability benefits and offset their LTD payment by the CPP/QPP amount received. The rationale is that the employer and the plan sponsor are not obligated to replace income above the pre-established all-source maximum.
Exam application: a scenario may present a claimant receiving group LTD plus CPP disability and ask you to calculate the net LTD benefit after offset. Work through the all-source maximum first; then subtract CPP from the gross LTD benefit to find what the insurer pays.