Buyout Offer Review
Not all disability carriers will offer buyouts. If you happen to receive an offer to buy out your policy in writing or by phone you should carefully consider your options before agreeing to settle. There are many reasons why your insurance company may want to settle your claim, but you can be certain that your insurance company would not be offering you a buyout if it was not found to be in the best interest of the company.
The insurance company’s actuaries and medical specialists will carefully assess the risks of your claim before deciding on a range of what might be offered to you to buyout your policy. A buyout is feasible only after the insurance company concludes it will likely have to pay your benefits to the expiration of the policy. Normally, this is to age 65 or your normal retirement age but if your policy pays lifetime benefits then you may not want to accept the insurer’s first offer. In deciding whether a buyout is practical, your insurance company will consider your age, the period of time remaining on the claim and the amount of money it has set aside in reserve for your claim.
Before you consider agreeing to a lump sum buyout, you should arm yourself with as much knowledge as possible surrounding how these settlements are calculated and make sure you fully understand the fine print—and everything in between—including the often confusing terms and conditions in the settlement agreement.
When you accept a buyout, your monthly disability benefits will end along with your coverage under the insurance policy.
Victor Peña Law PLLC will review any offer and help you understand the pros and cons of accepting or rejecting a lump sum buyout.
The Pros of Accepting a Buyout Offer
Accepting a buyout can be beneficial but it always depends on your unique circumstances. A lump sum payout could allow you to invest the money toward long-term retirement or help you pay down your debts.
Most long-term disability policies do not offer survivorship benefits so, if you pass away, your spouse and family will not continue receiving your monthly benefit checks. Taking a settlement can offer more security for your family in the unfortunate event that something happens to you while your family is relying on those benefits.
Taking a buyout also means you no longer have to worry that your insurance company will unexpectedly terminate your benefits. After handling numerous claims with all the major disability carriers any experienced private disability lawyer can tell you that no disability claim is guaranteed no matter how long you have been receiving monthly benefits. Each time your insurance company performs a medical review or requests information from you or your doctors presents a new opportunity to find a reason to cut off your benefits.
The Cons of Accepting a Buyout Offer
While a buyout may be a good option for many people, it is not always right for everyone. In calculating the amount to be offered, your insurance company will use a formula that discounts the total value of your claim. That formula will reduce the already reduced present value of your future benefits. If the insurance company’s offer is significantly less than the benefits you would expect to receive by staying on claim, a buyout may not be the best financial decision for you.
If you have difficulty managing your own finances, receiving a lump sum payment may not be in your best interest. Also, the younger you are the lower the offer will tend to be given the time value of money and the morbidity ratings factored in to discount the claim’s value. Morbidity ratings are calculated by your insurance company’s actuaries after accounting for the probability you will return to work in the future by analyzing their claims history of past claims. The same rating also considers the possibility of changes or advancements in medical treatment and technology.
The tax implications from taking a one-time payout are often significant and it is crucial to properly assess the pros and cons with the right team. Tax questions should always be discussed with an experienced accountant. Victor Peña Law PLLC's growing network of attorneys, accountants, actuaries, and other financial specialists can provide aide in the arena.