Should I Take A Lump-Sum Long-Term Disability Settlement Offer?
Long-term disability (LTD) insurance helps employees if they are unable to work because of an illness or injury. While short-term disability insurance only lasts for weeks or months, long-term disability benefits can last for years.
If you’ve filed a long-term disability claim, you may have been offered a settlement or buyout from the insurance company. While it can be tempting to accept, there are a number of things you should carefully consider before making a decision.
What Is a Long-Term Disability Settlement Offer?
A long-term disability settlement offer is an offer by an insurance company to pay a lump sum in exchange for your right to receive ongoing benefits under a policy. These offers are also called long-term disability buyouts.
Because long-term disability policies cost money to maintain, insurance companies may offer lump sum disability settlements to cut costs. Making the decision to accept a long-term disability settlement is one that should not be made quickly. Once you agree to the settlement, you will no longer have any claim to the benefits offered under the policy, and you can’t change your mind.
How Is a Settlement Offer Calculated?
There is no single method insurance companies use to calculate what they will offer. But generally, the calculation will involve a valuation of your benefits with adjustments to account for a variety of factors.
To start, an insurance company will calculate the present value of your benefits. The present value will account for inflation and mortality. This value is usually much lower than if you simply totaled the monthly benefits over the life of the policy.
Then, the insurance company will take the present value calculation and adjust it further based on:
- Life expectancy;
- Cost of living fluctuations over the duration of the benefit period;
- Increases or decreases in policy benefits over time; and
- Probability of the disability getting better or worse.
Remember that for an insurance company, whether to pay you a lump sum disability settlement or continue to pay your benefits long term is a risk assessment. If the insurance company sees enhanced risk in one option or the other (for example, if you were to file a lawsuit) the company may offer more or less in its settlement.
What Is a Fair Settlement Offer?
Unfortunately, there is no easy way to tell whether a long-term disability lump sum settlement is fair. Insurance companies will often undervalue a policy to lower the disability settlement offer as much as possible.
Even if the amount seems like enough, there is a lot to think about in deciding if the disability insurance buyout is fair. What might be okay for one person is likely to be insufficient for someone else. It all comes down to the individual circumstances surrounding the illness or injury and needs of the insured beneficiary.
What to Consider Before Accepting a Settlement Offer
There are several key things you should carefully consider before making a decision.
Age and Life Expectancy
The first thing you should consider in deciding whether a disability buyout is fair is your age and life expectancy. Ask yourself, How long will I need to depend on the settlement? Based on your answer, you can calculate your expenses to determine whether the settlement is fair.
Financial Security and Sources of Income
If you have other sources of income, a larger settlement may be less important. If you are unable to work and have no other income, however, it’s important to think about your financial security based on your age, life expectancy, and cost of living needs.
Likelihood of Returning to Work
Even if you have other sources of income, it’s always helpful to evaluate whether you will be able to return to work. If your long-term disability will not prevent you from working again in the future, you should still remember to consider how it may affect your hours, wages, and job opportunities going forward.
Future Medical Expenses
Severe illness or injury may require long-term medical care. As you recover, these costs will probably change. Unexpected complications or re-injury, for example, may increase medical expenses down the road.
The Strength of Your Claim
The strength of your disability insurance claim will be highly dependent on the facts of your particular case. Speaking with a disability claims attorney can help you figure out whether you have a strong claim. If an insurance company is disputing your claim and the claim is less clear, it may be worth accepting the settlement rather than fighting it out in court or risking losing your benefits altogether.
How Much of the Money Will Actually Go to You?
Will my long-term disability settlement be taxed? is a question we see frequently. The answer depends on the facts of your case and who is responsible for paying the insurance premium. In addition to taxation, remember that some of the settlement will go to attorney fees and other expenses. After all expenses are paid, make sure the settlement amount actually going to you is enough to meet your needs.
Is the Offer Reasonable?
It’s good to step back and evaluate the settlement offer as a whole. Based on the severity of the injury or illness and the terms of your benefits policy, is the offer reasonable? In cases where it’s not immediately obvious, considering the other factors in this list with an attorney can help you decide whether the offer is reasonable.
Can I Negotiate My Settlement Offer?
After seeing a settlement offer, you may want to try to negotiate it with the insurance company yourself. However, the insurance company is likely only making you an offer because doing so will save money over time. In other words, the insurance company may not be open to increasing the settlement offer, especially if your underlying claim isn’t very strong.
If you’ve received a disability insurance settlement offer, it’s important to contact an attorney with experience dealing with insurance companies. Regardless of the strength of your claim, a lawyer can help you work with the insurance company to make sure you receive the benefits you need.
Do I Need a Lawyer If I Receive a Disability Insurance Offer?
The best thing you can do after receiving a lump sum disability insurance buyout offer is to contact an attorney. Remember, the insurance company is not acting in your best interest. Although their offer may seem like a lot of money, it is probably much lower than what you would receive if you kept your existing long-term disability benefits.
A disability insurance claim is complicated, especially if the Employee Retirement Income Security Act of 1974 (ERISA) is involved. Hiring a disability insurance claim lawyer allows you to take advantage of their expertise in evaluating any offer you receive. They can help you analyze each of the factors listed in this article to determine the best approach to take with your claim.
Did You Receive a Long-Term Disability Settlement Offer?
If you’ve received a long-term disability buyout offer or if your employer is disputing your disability claim, the Peace Law Firm can help. We have over 15 years of experience making sure clients get what they deserve from insurance companies. Our experienced attorneys can assist you in determining whether an offer is fair and how best to proceed. Contact us today for a free consultation.