How is a long-term disability lump-sum buyout calculated?
A buyout is the present value of your future monthly benefits. Multiply your monthly benefit by 12, then discount the stream of future payments to today's dollars using a discount rate (typically 3–6%). Insurers then apply an additional discount for the risk that your claim could be terminated on a future review.
Should I accept an LTD lump-sum buyout offer?
A buyout ends your claim permanently. It can make sense if you want certainty, distrust the insurer, or expect a difficult any-occupation review. But insurers usually offer 60–75% of the true present value. Have a disability lawyer evaluate the offer before accepting — the first number is rarely the best.
Is an LTD lump-sum settlement taxable in Canada?
If your monthly LTD benefits would have been non-taxable (because you paid the premiums), the lump-sum buyout is generally also non-taxable. If the monthly benefits were taxable (employer-paid premiums), the tax treatment of the lump sum is more complex — get tax advice before settling.
Can I reopen my claim after a buyout?
No. A lump-sum buyout is a full and final settlement. You sign a release giving up all rights to future benefits, even if your medical condition worsens. This is the single biggest risk of accepting a buyout.