Chartered Professional Accountants of Ontario
Manulife Financial


Getting the Best Disability Protection:
How Group Disability Plans Work With
CPA Select Income Protection Insurance

CPA Select Income Protection Offset Case Study
Do you really know what your group long term disability insurance would cover if you became sick or injured? Does it cover all of your earnings? Who controls the plan?

Reliable disability insurance coverage is a critical part of your financial planning. Thanks to recent changes to the CPA Select Income Protection Insurance Plan, you can now “offset” any gaps in your employee group insurance plan – easily and cost-effectively.

The offset approach allows you to purchase more CPA Select Income Protection insurance than we would normally offer when you have existing group disability coverage. In keeping with standard insurance practices, however, these higher amounts may be reduced (offset) by any benefits payable from your ”other” plan.

Here’s an example
George is a 43-year-old CPA at a large manufacturing company with an annual salary of $120,000. George regularly earns a bonus based on company results, which adds about $40,000, on average, to his total income each year. His company-paid group disability plan covers 50% of George’s salary – but all benefit payments are taxable as income and the plan does not cover his bonus (a significant portion of his annual income).

When George investigates the group LTD plan, he also discovers that the coverage contains a One-YearOwn Occupation definition of disability, which means George’s benefit payments will end after just 12 months if he is able to perform any job (no matter how menial). More importantly, George is planning to leave his company within the next two years to begin his own firm, at which time he will automatically lose his company coverage.

George decides to buy CPA Select Income Protection insurance to ensure that he has at least $5,000 a month to cover his core living expenses. (The CPA Select income replacement formula would allow him to purchase up to $6,700 per month based on his total pre-disability income of $160,000.) The following table illustrates how the CPA Select offset works with George’s company plan to provide adequate benefit coverage. This example assumes that benefit payments under both plans begin after three months of disability and that the own-occupation provision under the group plan ends after 12 months.


Annual income
Monthly benefit amount payable
from the
employer group plan
Monthly benefit amount payable
from the
CPA Select Income Protection Plan
At application
$120,000 + $40,000
50% of salary only
(taxable as income)
$5,000 with group offset (non-taxable)
3 months after disability occurs (disability payments begin)
$0
$5,000
(taxable as income)
$3,200*
(non-taxable)
12 months after Disability occurs (Own-occupation provision ends under group disability)
$0
$0
(benefit payments cease)
$5,000
with Annual 8% COLA adjustments

*The additional CPA Select “offset” benefit is calculated using the amount that would normally be issued based on your pre-disability income, and reduced by the amount the employer group plan actually pays. When necessary, a 70% factor is used to convert taxable benefit amounts to a non-taxable equivalent. In this case, George’s maximum non-taxable monthly benefit (based on income from both salary and bonus) is $6,700, using the same CPA Select income replacement formula. This is reduced by $3,500 (70% of the taxable group benefit of $5,000) while the group plan provides benefits. The result is an additional benefit payment of $3,200 ($6,700 - $3,500).

CPA SELECT - INCOME REPLACEMENT OFFSET AMENDMENT
Earnings
Income Replacement Formula (IRF)
Group Benefits (Taxable)
CPA Select
using Top Up
With Offset Option
At Application
Base
$120,000
Max $5,000
$6,700
$6,700
Bonus, Profit, etc
$40,000
less $5,000 group
Total Earnings
$160,000
$6,700**
$5,000
$1,700
$5,000
selected benefit
Premiums are based on
$1,700
$5,000
At disability
Group Benefits Paid
Top Up Benefit
Total benefits from all sources are limited to IRF
$5,000 taxable
$1,700 non-taxable
$6,700 - ($5,000 * 70%) = $3,200
Total Benefits
$5,000 taxable Group Only
$5,000 group + $1,700 = $6,700 using Top Up
$5,000 group + $3,200 = $8,200 using Offset

For more information, read our discussion page and our Frequently Asked Questions about group disability offset.