Principal financial, headquartered in Des Moines, Iowa, is a global financial investment management and insurance company. The company provides both individual disability policies through insurance agents and group ERISA disability policies through employers.
The group disability division is known to extend lump sum payment offers to their claimants as an alternative to continuing the claim.
After considering all your options, you may decide that taking a buyout from Principal is what you want to do. There are many advantages to accepting a lump sum payout. Here are a few common benefits:
Provide security for your family
Generally, disability policies do not provide rights of survivorship—meaning that if you pass away your benefits will end. If your family is relying on your monthly benefit checks and something happens to you, they will no longer have those benefits to live on. Accepting a one-time payout provides security to you and your family if something happens to you while your claim is still in force.
No longer have to deal with claim forms
As long as you are on claim, Principal will continue performing periodic reviews to determine your ongoing eligibility for benefits. These forms can get annoying for the claimant as well as treating physicians. Often, doctors become fed-up with completing claim forms and simply refuse to complete them if the insurance company’s requests become too frequent.
No longer have to worry about undergoing evaluations
Disability insurance companies like requesting independent evaluations, functional capacity evaluations (FCEs) and in person interviews. The process can become stressful for claimants and lead to extra pain depending on your disabling conditions. Often, such evaluations are used merely as a tactic to create evidence to support a denial of benefits. Most disability policies will contain provisions giving the insurance company the right to perform these evaluations leaving you with no choice but to agree.
No longer have to worry about a change in the claim administrator
It is not uncommon for insurance companies to merge with or be acquired by other companies or for an employer to switch administrators. If this happens while you are on claim, the change can result in a change in the claims process, claims personnel, and often invoke new medical reviews. All of these changes can cause delays and lead to benefit denials.
Eliminate the risk your benefits will be terminated while you are still disabled
Just because you are receiving benefits now, and have been for years, does not guarantee that you will continue to receive those benefits. It is very common for insurance companies to terminate claims even after 18 years of benefits. Insurance companies can always find a way, especially if they have the right to have you undergo independent evaluations. Often, compulsory evaluations are less than “independent” since they are performed by doctors who regularly work with insurance companies.
You might get better and return to work
The hope is that your disability will not last forever. Sometimes improvement comes only after years of being on claim. If you get better and want to return to your previous occupation or desire to try to work in an occupation that will accommodate your functional limitations, then taking a buyout could be to your benefit.
Despite many advantages, disability buyouts are not right for everyone. In some situations, a lump-sum payout can be a detriment.
You have a lifetime benefit rider
If you have an own occupation policy with a lifetime rider, taking a buyout may not be to your benefit. You should carefully review an offer with an experienced buyout lawyer along with a financial advisor. Calculating the present value of a claim on a policy with a lifetime rider is difficult and there are many other variables to consider. If you are interested in a buyout and have not received an offer you should speak with experienced professionals before approaching Principal with a request or an offer.
Your benefit is taxable
Whether your benefit is taxable or not can make the difference between accepting a buyout or not. A benefit that is taxable will mean that a lump sum payout will be taxable. Receiving a buyout could come along with a huge tax bill that may make the option unfavorable.
The offer is very low
Any offer from the insurance company will be only a fraction of the total value of your claim. You must be willing to lose as much as 30-40 percent of your benefits by taking a buyout. If the offer is too low, sometimes it is simply not worth the loss.
You will lose other benefits
You should carefully review your disability policy before accepting any offer. Also, if your policy was a group employer sponsored benefit then there may be other benefits that could be affected by accepting a buyout. You should contact your former employer to see if there are any benefits such as health insurance, dental, life, or even a pension that could be affected.
You cannot manage your finances
If you have trouble managing your finances alone then perhaps taking a buyout is not the best idea. If you really need the lump sum payout but you want assistance with avoiding the tax implications or help managing the money, then often a settlement annuity can be helpful.
Remember that you should never feel compelled to accept a buyout offer from Principal and remember that a settlement is merely voluntary. Principal cannot force you to accept a settlement.
In calculating an offer, Principal will take several factors into consideration. This includes the present value of anticipated future benefits, mortality and morbidity ratings, your most recent medical and financial information, other benefits you may be receiving or eligible to receive, etc. How each factor affects the buyout offer amount depends on each case. It is important to make sure that all these factors will be seen in the light most favorable to you and your potential buyout. If Principal has extended an offer, then these factors have already been evaluated. If there is no open offer but you would like to engage Principal Financial in buyout negotiations, it is crucial to involve an experienced attorney who can guide you before approaching Principal.
The general rule on the federal taxability of disability benefits depends on how the premiums were paid. If the premiums were paid with pre-tax dollars then the benefits would be taxable. If the premiums were paid with post-tax dollars then the benefit would not be taxable.
The taxability of a buyout generally follows these rules. If you have any questions on whether the benefit is taxable, Principal is usually willing to clarify this for you. For all other tax questions, an experienced tax professional is the best source for answers. The DI Lawyer has a network of tax professionals that can help answer these questions.
If you are on claim with Principal and you are interested in engaging Principal in settlement negotiations, you should think carefully before approaching them. It is possible to approach Principal too early and cause them to become suspicious of your inquiry. If you have been on claim less than two years it is highly unlikely that Principal would consider buying out your policy. What’s more, your inquiry could lead Principal to investigate why you wish to settle your claim. They may think you are planning on returning to work and so have improved and no longer disabled. This could in turn trigger a medical review where Principal decides to investigate your most recent medical records. They may even decide to perform surveillance to see if your activities are consistent with the information they have been provided via claim forms and attending physician statements. They may suspect you are working.
You may have an interest to try to work in a less demanding occupation that accommodates your disabling conditions. If you have a private disability policy with an own occupation definition of disability this may be possible without any problems. However, careful steps should be taken before making the decision to work while on disability.
It is always a good idea to consult with experienced professionals before making any major decisions like ending your disability claim. If you do decide to seek legal help, be sure to find lawyers who are experienced handing disability claims with Principal. The DI Lawyer has years of experience handing Principal Financial disability claims at every stage of the process including buyouts and settlements. The DI Lawyer now focuses exclusively on handling buyouts.