Should I Accept a Long-Term Disability (LTD) Insurance Buyout
A lump-sum payment instead of long-term disability (LTD) payments with its concomitant red tape and reviews may be very tempting, but it requires the assistance of an experienced and knowledgeable lawyer to plan, calculate and think through the pros and cons.
What Is a Lump-Sum Disability Insurance Buyout?
A lump-sum buyout refers to a settlement offer by your long-term disability insurer to buy out your remaining future disability benefits.
Accepting a buyout offer would effectively mean that you are taken off the books and no longer have any claim against the insurer for disability payments.
Signing the settlement offer releases the insurer of any obligations toward you.
Long Term Disability Buyout
In most cases the lump-sump buy-out is offered by your insurance company because they believe they can save money in the long run – it is a business after all – or it may be used to avoid going to court if legal action is instituted after unfair denials and revocation of payments. Understand that it is not offered out of kindness or concern, so it is imperative that protect your rights by consulting with a disability buyout lawyer before making a decision.
Long-Term Disability Insurance Payouts
Not all insurance companies offer buy-outs, and the right to a buyout will not be stated specifically in your policy, so they are under no legal obligation to provide a buy-out.
Buy-outs can be offered by the insurance company, or the insured disabled person can request a buy-out, in both cases, it is wise to consult with your long-term disability buy-out lawyer. Consult a lawyer before responding to or approaching your insurance company on a buyout to be clear on what your options are.
Policies can be purchased individually or sponsored by your employer, and if it is offered as part of your benefits package, you may want to ask for a copy of the policy for your records. If your lawyer feels you are inadequately covered you may wish to add your policy as well, to protect your future and that of your loved ones.
An employer-purchased policy will likely be governed by ERISA, and this will affect if a buyout is offered and how it will be handled.
It Is So Tempting!
With years of long-term disability payments stretching ahead of you, the constant threat of claim review hovering in the back of your mind, and no way of bettering your financial position by normal means such as a promotion or a better job, a lump sum buyout may be a tempting option!
Some of the reasons you may have for accepting the buy-out include:
- Your relationship with the insurance company has deteriorated, and you want to be free from the frustration and worry of dealing with them.
- You worry about your insurance carrier changing their policies or processes and how it may affect your long-term disability benefits.
- Your insurance carrier is changing management, and you are concerned about their philosophy on customer care changing.
- You have been inundated with a merry-go-round of filling out claim-forms, obtaining progress reports, doing Independent Medical Examinations and Functional Capacity Evaluations, disclosing financials and medical statements, and constantly worrying about your disability status being disputed.
- You are concerned about your privacy being invaded through investigations and surveillance, from video-surveillance to social media checks.
- You think you can do better by investing the money and secure better payouts in the long-term.
- You are concerned that legal changes may impact the terms of your payouts, or that falsified claims by others may impact your ability to continue proving disability.
- You suspect that your disability is improving and that you may one day be able to return to some form of work.
- You would prefer to have the financial stability to pursue further education to be able to return to work in a different capacity where your disability will not affect your ability to perform meaningful work.
- Financial security will allow you to pay off medical bills that keep accruing interest.
While these are all very good reasons for wanting to accept that lump-sum buy-out offer, do not sign it until you have consulted with your disability buy-out lawyer, to make sure that you maximize the buy-out amount. Do not approach your company on your own if you wish to request a buy-out – they may use any information you provide against you to refuse a buy-out and eventually cancel your disability benefits, as they will always look out for the company’s best interest.
Your social security benefits may also influence the amount offered, and they may even refuse to consider a buy-out until you are eligible for social security benefits to minimize their pay-out.
Reasons Not to Accept a Settlement Offer
- The will make a low-ball offer, which leaves room for negotiation by your lawyer.
- A buy-out may under certain circumstances disqualify you for certain benefits.
- Concerns about the economy and your ability to invest the money responsibly to ensure long-term financial security.
- A lack of money-managing skills is a clear indication that you have to get professional advice before considering the buy-out – even the smallest suggestion from you or your family to employ the money to relieve current financial stress or to spend it on non-critical necessities or holidays should alert you of the need for professional advice and management if it is deemed beneficial to accept a buy-out.
- If there is any possibility that your condition may get worse, or that current treatments no longer work and may require more sophisticated and expensive treatments at a later stage, you need to carefully consider if the settlement will be enough to cover such expenses.
- You have to consider the tax implications of a lump-sum settlement and need to get professional advice on this.
- The value of your settlement will always be less than the value of the continued payouts – each case is different and depends on your risks and circumstances.
These are all valid reasons but should not be used to turn down an offer without consulting with your lawyer, doing proper calculations, and considering all the laws and state regulations that apply to maximize your benefits.
How a Settlement Offer Is Calculated
The insurance carrier will use complex calculations to arrive at a lump-sum offer amount, and typically will offer at the low range to start, but rest assured that they will also have a higher ceiling for payment available, and will defend against it as hard as you will fight to increase it.
You may think it is a simple calculation, working out your monthly payments multiplied by the number of months left to pay (depending on if your policy pays to a specified age or for life) but you will be sadly mistaken.
In order to offer a lump-sum payment the insurance carrier will first calculate the Net Present Value (NPV) based on the principle of the ‘time value of money’ of the life of their obligation to you, and then they will apply morbidity and mortality calculations and discount for any other factors that may come into play. These calculations or how they were arrived at are typically not disclosed in an offer, but your lawyer can obtain a lot of information to make a more informed decision as to how fair the offer is.
For Net Present Value to be calculated, in simple terms you need to know the monthly benefit amount, the number of payments left and the discount rate, but for long-term disability insurance buy-outs they will consider the following factors:
- Lifespan of the policy
- Claimant’s age at the time of becoming disabled
- Current monthly benefit
- Rate of expected inflation
- Estimated discount rate to account for inflation
- Cost-of-living (COLA) provisions in the policy contract
- When the next COLA increase is due and how frequent
- Periodic or optional benefit increases in the policy
- Policy wording on buy-outs
- Possibility of incentives to agree to a buy-out
- Social security and other public benefits
- Current state of health
- Nature of your condition (permanent or transitory)
- Feasibility of disability worsening or clearing up
- Probability of morbidity or mortality during the term of the policy payouts
- Whether the policy is governed by ERISA
- Threat of legal action and their perception of the worthiness of the legal battle
- Current yields of commercial bonds
- Reserves set aside for your claim
Time Value of Money refers to the amount of money you need to get today, given a reasonable interest rate, to equal some amount in the future.
Morbidity refers to the expected length of time an individual (as part of a group) may be expected to be disabled.
Mortality refers to the probability of the insured dying (based on group assumptions).
Some insurance carriers will offer as little as 15% on your NPV, and as high as 75% when a claim is uncontested. This is where you require the negotiation skills of an experienced long-term disability benefit buy-out lawyer, who is familiar with insurance companies and their tactics, insurance law and both federal and state regulations.
How Can Your Lawyer Help?
Navigating the maze of long-term disability payouts can be challenging, and could include disputes regarding your occupational requirements, diagnoses, impairments, functionality, denials, appeals, buy-out settlements and even how the settlements are calculated.
Insurance carriers will claim deep discounted rates when actuarial tables already account for part of the discounts, and a myriad of other tactics will be employed to minimize their liability. You will need an experienced lawyer, familiar with all the major insurance carriers and a network of medical professionals, actuaries, tax and financial professionals and sometimes structured settlement consultants to assist you.
Victor Peña Law PLLC handles disability buyouts Nationwide, and provides a unique online legal services model, which can assist you with a buyout no matter where you are located. Our professional network covers every state, and you will receive customized local assistance to help you determine if a long-term disability insurance buyout is a good fit for your unique financial situation.
Interaction is via electronic media such as video-conferencing, email and a client portal, or call us, and ensure fast, efficient and effective results. Contact us today for a free consultation.