Long Term Disability Insurance Lump Sum Settlements
Claimants on long term disability who have been successful in having their claims approved may have an important touch point in the course of their claims. If you have been asked to consider a lump-sum payment from your long term disability insurance company, proceed with caution. Doing this without the help of an experienced disability insurance attorney could be risky—and expensive. This is a one-time opportunity and could be a significant financial win or a disaster with significant implications. Newfield Law Group offers free phone consultations about settlements for long term disability insurance claims.
What is a Lump Sum Settlement and What Does it Mean for Your Future?
Called a buyout, negotiated settlement, walk-away settlement, or lump sum settlement, this is a one-time payment offered when the long term disability insurance company and the claimant agree on a final payment that ends the claim. Note that it may have other implications for other coverages and thus cannot be simply viewed in a vacuum. It often sounds great, but as with anything relating to disability insurance, be cautious. This is especially the case if you’ve got a chronic condition and have been on claim for a number of years. It’s not being done to help you.
The first offer will often be far lower than the value of your claim. The insurance company strategy is to low-ball the offer, just as it counts on people not fighting back when a claim is wrongfully denied. The goal is straightforward: get your claim off their books once and for all. The calculation of the offer will be confusing since it will reflect a present value calculation that makes the total value seem small.
You should ask for information about how they came up with the number, but don’t expect it to be understandable. If you’re not an economist, actuary, or CPA, you will do better with the help of a skilled disability attorney who knows how your claim *should* be valued and can negotiate on your behalf objectively. There are factors involved including mortality, morbidity, and present value, and these all impact both the valuation of the claim in today’s dollars and how much is potentially feasible for the company for settlement.
Understanding the Value of Your Claim: Present vs. Future Value
If someone hands you $1,000 today and you didn’t spend it or use it to pay off a debt, you’d invest it for growth over time. On the flip side, in the face of inflation, $1,000 today could be worth less in the future. If you spent the money, it’s fixed at $1,000 and won’t ever grow. These are simple examples, but the concept is that the value of money changes over time.
If you multiply your monthly benefit by the number of years left in your claim and possibly factor in your life expectancy, that number won’t be right either. This is not something to tackle without professional help.
The true value of your claim is based on many factors, and each person’s situation is different. Someone with an impairment who is able to work on a part-time basis at age 56 has a very different claim value than someone else who can’t work at all, whose policy pays benefits until they die, and who expects to have a shortened lifespan. There are many moving parts to be considered.
Don’t negotiate with the insurance company until you know the true value of your claim.
What Could Go Wrong if I Accept a Lump Sum Settlement?
Once you accept a long term disability lump sum, you cannot go back to the well for any other claims. There won’t be any second chances. If you have more than one condition and are working part-time, for instance, you are forfeiting the ability to file a disability claim for any other reason. You may lose health coverage or other benefits resulting from a settlement of a group long term disability insurance claim, or you may be able to keep it separate.
Can You Responsibly Manage a Lump Sum Buyout?
Many people, even very successful individuals, fall short when it comes to managing large sums of money over extended periods of time. People become targets when others learn they have received a large sum of money. Creditors may pursue you more aggressively, as will former spouses, ex-business partners, aggrieved relatives, and scammers. Sometimes, getting the monthly benefit is more valuable.
Are You Ready for the Stress of Battling the Disability Insurance Company?
People who are too sick or injured to work are vulnerable. They are adjusting to a new life with their disability, and the last thing they need is to battle giant insurance companies and their representatives. Just as claims are wrongfully denied, lump sum settlements are challenging for the claimant.
Do not succumb to the pressure exerted by the disability insurance company representative. Fight back with the help of Newfield Law Group on your side. Leverage our knowledge and experience.
Are Long Term Disability Lump Sum Settlements Taxable?
There may be tax implications to consider, depending upon how the premiums were paid—with pre-tax or after-tax dollars. If you have a group policy, the settlement may be taxed as if it were regular income. Will taxes take a big bite out of the settlement? If so, will the settlement be enough to cover your living expenses and medical expenses for the rest of your life?
Should You Accept a Long Term Disability Policy Buyout?
The insurance company is counting on you, your family, and your doctor wishing to be done with the headaches of a disability insurance claim. But if your benefits are your primary source of income, a settlement could be problematic.
- The current value will always be less than your claim is worth if paid until the end of coverage.
- Other benefits may be impacted, like life and health insurance, if they require you to have LTD coverage.
- The settlement may be taxable depending upon how premiums were paid.
- You will lose the ability to file any future disability claims.