FACTORS TO CONSIDER IN A LONG TERM DISABILITY LUMP SUM SETTLEMENT
July 30, 2021
Picture this: you’ve been on long-term disability insurance for several years and suddenly your insurer contacts you with an offer. They’ll give you what they term a “generous” buyout of X amount of dollars if you forego the remaining periodic payments that you are owed.
Or, in another situation, you may have just recently started your claim for long-term disability, it has been less than two years, and your insurance company contacts you with what seems like an incredibly low-ball offer to settle your claim in a lump sum. Or perhaps you have just won your administrative appeal after having your benefits cut off by Hartford, Cigna, Unum, MetLife, or any other disability insurance company. You now wonder if it is possible to simply take a lump-sum payment and avoid having to go through that process again in the future.
In any of these cases, should you accept the lump sum buyout offer or even approach your insurance company with such a request? Should you just assume the insurance company is out to get you and give you what amounts to pennies on the dollar? The short answer is that it all depends on the circumstances. That’s why you need the guidance of a knowledgeable buyout professional before accepting or declining an offer.
Here at my firm, Victor Peña Law, PLLC, I have extensive experience dealing with disability insurers — good and bad — and I can help you assess your claim situation. If you have been offered a disability insurance buyout, contact my office today for help evaluating the offer and determine if it is reasonable. If you are frustrated with the ongoing reviews or simply want to part ways with the insurance company contact me to discuss your option and whether a buyout is a good option for you. Our main office is located in Fort Lauderdale, Florida, but my firm handles cases across the state of Florida and throughout the United States.
Why Insurance Companies Offer Disability Buyouts
The insurance company that is paying, or should be paying, your long-term disability claim has the same goal as any other insurance company — protect their bottom line. That’s why they will periodically review ongoing claims and offer their claimants a buyout. They may even do it very early on within the first two years of being on the claim.
Some insurance companies will make reasonable buyout proposals. Others will start with the lowest figure possible, and still, others will use every trick in the book to trick you into accepting unfavorable buyout terms. Again, this is why it’s important to remember that insurers are looking out for their bottom line first — not what’s best for you.
In evaluating a buyout offer it is important to determine if the offer is not simply a way for the insurer to terminate your claim early. You should carefully consider the amount of time you will need the disability income. Assuming your disability is permanent, you should make sure the settlement offer will cover you for as long as you need the money. We offer free claim reviews to help you determine your best options.
Factors You Should Consider in a Buyout Offer
Some buyouts may be just what you’re looking for. You can pay off debts, set up an annuity or other interest-bearing account, and even start a business of your own. Other offers will fall far short of that, but often there is room for negotiations. Some of the factors you need to consider when confronted with a buyout offer include:
The Time Remaining on Your Claim
The longer the time you have remaining on the claim, the lower the buyout offer tends to be. This is due to the number of uncertainties that increase with time. Also, if your disability benefits are your only or primary source of income, you should carefully consider the amount you will need to live on for the rest of your life or until you can secure another source of income. If it’s for life, the buyout, along with your other income, must be enough to cover you through the amount of time that you expect to need money. If it’s 15 years, then your finances would need to cover that time frame.
The Likelihood You’ll Remain Disabled
If you’re permanently disabled, then a buyout could be a lifetime proposition. If at some point you can recover enough to enjoy a normal or near-normal life — including gainful employment — that’s another consideration. You may have another source of income. But one’s future is never fully guaranteed. Don’t accept a buyout just because you are fed up with dealing with your insurance company.
This is the main factor to consider if you have a policy that pays a lifetime benefit. Most disability insurers will estimate the lowest possible life expectancy after factoring in your medical history, and other risk factors. If you do not have a lifetime policy it still matters. For instance, if you have a low life expectancy due to a terminal condition then chances you’re your insurance company will not be willing to do a buyout of your future benefits since it will be expected your life will end prematurely.
Investment Opportunities And Current Interest Rates
In calculating a buyout offer, it is necessary to calculate the present value of anticipated future benefits. This requires a consideration of current interest rates. Depending on the amount of your monthly benefit and time remaining on the claim, fluctuations in the interest rates could mean a significant change in the present value of your benefits. Also, if you are going to accept a buyout and then invest all or part of it, you’ll need to be cognizant of where interest rates are and how that will impact your offer. Many claimants choose to invest in the stock market, precious metals, or cryptocurrencies. However, it’s never wise to settle your claim with the intention of gambling on the market without any experience and when your disability is your primary source of income.
Current & Future Offsets
If you have an employer-sponsored retirement plan or another retirement account, it's important to consider. Social Security may also kick in down the road if you are not already receiving SSDI. However, a buyout is not usually an option if you are not receiving SSDI benefits. If you do receive a settlement offer before receiving any SSDI benefits then be very suspicious and speak with an experienced buyout professional before accepting any offers.
How I can Help You Make Strategic Decisions for Your Future
Being offered a buyout when you’re already receiving periodic payments can be a double-edged sword. In some cases, it can be just what you need, provided that other conditions and options are already in place. In other cases, it may shortchange you in the long run, to the point that you won’t be able to survive down the road. It’s often a tough decision, but the one factor to remember is that the insurance company wouldn’t be offering it if it didn’t save them money.
If your insurance company has offered you a buyout, contact me immediately. If you are on claim and you are interested in discussing whether a buyout can be an option for you feel free to reach out to me for a claim assessment. I am familiar with the tactics of every major disability company. Never reach out to your insurance company and ask for a buyout on your own without discussing it with an experienced buyout professional. If you ask at the wrong time, you could jeopardize your claim.
With offices located in Fort Lauderdale, Florida, and Orlando, Florida, my firm proudly handles cases for clients nationwide, including clients located in and around the areas of Los Angeles, Seattle, New York City, and Chicago. Call or reach out today to schedule your own consultation. Together we can discuss the details of your case and how I can help you make the best decision for your future.