A buyout is a one-time lump sum payout from your disability insurance company in lieu of paying ongoing monthly long-term disability (LTD) benefits. The payout is usually a single lump sum payment although sometimes it can be disbursed in several installments.
This payment arrangement can be offered at any stage of your claim, depending on your insurance company.
What is a structured settlement?
In the context of a disability buyout, a structured settlement is a financial arrangement that typically involves the purchase of an annuity. The annuity can be set up to best meet your needs.
Unlike a disability claim, which can be terminated at any time, with a settlement annuity your payment is guaranteed. With an annuity, your money is not subject to loss as a result of changes in market conditions.
Also, you can reduce the amount of money lost to taxes if your benefit is taxable. An annuity can be set up the way you need it and can be combined with a cash settlement.
How to secure a buyout
Securing a buyout requires the right timing and a properly prepared claim. It is possible to approach an insurance company too early with a buyout request. Calling your insurance company after only a few months of benefits will lead the insurance company to become suspicious. It is rare to see lump sum payout offers before the 24-month mark. Inquiring about a buyout while only a few months into the claim could lead your insurance company to perform an in-depth review which may or may not include an activities check and surveillance.
While early offers are rare, they do happen, and only certain insurance companies will offer settlements within the first two years. However, an early offer usually means the insurance company has determined your benefits will not extend beyond the 2-year mark. If your insurance company extends an early offer you should contact an attorney immediately.
The Buyout Review
Each insurance company has its own method of calculating a buyout offer amount. Determining whether a buyout can be offered at all, is the first part of the process. The same basic principles will be common to all insurance companies. First, your benefits must be reduced to the present value of your anticipated future benefits. Also, there will be a reduction for mortality and morbidity ratings.
Insurance companies will have actuaries to run the numbers and calculate how much, if anything, can be offered to buyout your policy.
If you receive an offer from your insurance company they have already performed the appropriate review. If, however, you decide you want to ask for a buyout then you should make sure that you and your doctors are prepared. Your claim must be ready before you ask.
As part of the review process, the insurance company will look into all recent medical information available and they may want to talk with your doctors. It is crucial to contact an experienced disability buyout attorney to assist you in preparing your claim BEFORE you call your insurance company.
I am eligible for a buyout, what now?
If there is already money on the table or you have already received a call from your insurance company indicating that a buyout is an option for you then you have to start weighing the pros and cons.
Is a buyout a good idea?
A buyout can be good, or it can be bad. It all depends on the person and his or her unique circumstances. Some of the advantages of taking a lump sum payout may include:
- Having the money to invest
- Using the money to pay off debt
- Eliminating the possibility that your insurance company will terminate your claim
- No longer dealing with requests from your insurance company for claim forms from you and your doctors
- Having money to pay for vocational training or college—you may be able to acquire additional skills enabling you to work in a field that accommodates your disability
- Provide financial security for your family
There can also be disadvantages to taking a lump sum buyout:
- You will lose a large portion of your benefits by taking the payout early—this can usually be 30-40 percent of the total value of your claim
- You can lose other employer-sponsored benefits by accepting a buyout—such benefits may include health and dental insurance, life insurance, and even continued participation in a company provided pension plan
- The taxes payable on a lump sum could be excessive
For some, the disadvantages do not outweigh the advantages, and deciding whether or not to accept a buyout requires an assessment of each person’s unique circumstance.
For others, a buyout is an attractive option. If you decide you want to pursue a buyout you should contact an experienced disability buyout lawyer to review your options. For clients who find themselves experiencing some of the tax downsides of a buyout, a Structured Settlement can be the answer.
Why a Structured Settlement if I was already receiving monthly installments from my insurance company?
A structured settlement allows you to break up the payments over time, typically through the purchase of an annuity. Dividing the payout into smaller installments may allow you to reduce your tax liability each year. Although you were already receiving monthly installments from your insurance company, your payments through a structured settlement are now guaranteed. The risk of claim termination is eliminated, and your family can be financially secure.
But before contacting a structured settlement company you should contact an experienced attorney to discuss all your options. A buyout attorney will review the legal paperwork including the settlement release which will require you to surrender all rights to your disability policy. The right attorney can also negotiate favorable terms including a higher offer.
The DI Lawyer advises and negotiates for his clients to achieve the best possible result. We also have a network of financial and tax professionals as well as actuaries who can review the insurance company’s calculations. We have consultants who can discuss and set up a structured settlement if you so choose.
If you are interested in a buyout or have an open offer from your insurance company on a claim with taxable or non-taxable benefits, feel free to contact us for a free consultation. We have a network of structured settlement professionals in addition to other relevant professionals who can assist in securing the best possible buyout terms for you. Contact the DI Lawyer at 954-515-5504 or submit your information for a call the same day.