Negotiating with your long-term disability insurance company doesn’t end when the adjuster agrees you are disabled. Dealing with ongoing disability assessments and claims forms can be a burden. So, when a long-term disability insurance policy buyout option arrives it might be tempting to sign the settlement agreement and be done with the insurance company forever. However, you may want to take a closer look, and talk to a lawyer, before you decide whether to say yes.
This blog post will discuss what to do when you receive a long-term disability insurance policy buyout or settlement offer. It will explain the value of reviewing your rights, and the offer, with an experienced disability attorney and how to avoid giving up more than you intend.
Why Are You Getting a Long-Term Disability Insurance Policy Buyout Offer?
After you finally finish fighting with your company’s ERISA long-term disability insurance company, you may expect to simply receive monthly (or periodic) payments as long as you need them. Then you receive an offer from the insurance company to receive a single lump-sum policy buyout instead. The big number on that offer can be hard to turn down. However, it might also make you suspicious about why the insurance company wants to buy you out.
Rightfully so. Long-term disability insurance providers use policy buyout settlement offers to reduce the amount they have to pay out over time. Not every disability insurer uses lump-sum buyout options. Those that do have their own reasons for who they will send their settlement offers to, when, and why. However, you can generally assume that if you receive an offer it is because the insurance company believes it will save money if you say yes.
How Does the Insurance Company Decide How Much to Offer?
It can be hard to believe the insurance company will save money by offering you such a large lump sum. However, you have to consider how the company’s adjusters calculate that number. A Long-Term disability insurance policy buyout amount is generally calculated based on:
- The value of your monthly payment, including future benefits;
- Your current age;
- Your mortality rate (Whether you are expected to live longer than your maximum payable benefit period);
- Your morbidity rate (whether you are likely to recover partially or fully before you reach that maximum benefit);
- The company’s cash reserves
Once it determines the total value of your likely benefits, the insurance company will then adjust that amount to its “present value.” That means the amount it would have to pay now to allow you to end up with the total value if you invest it over the entire period. This is based on the assumption that a lump sum in today’s dollars would earn interest over a certain period of time to equal the future value of the benefit.
Even after you do all the math, a disability insurance policy buyout offer will almost always be less than you would be entitled to over the full duration of your benefits. That is what makes it a settlement offer — a compromise. By accepting the buyout, you are agreeing to receive less than you are entitled to in exchange for receiving it sooner than you would without the settlement.
What to Consider Before Accepting a Long-Term Disability Insurance Policy Buyout Offer
That is not to say that you should always say yes or no to a long-term disability insurance policy buyout offer. There are pros and cons to accepting the offer depending on your circumstances.
Why You May Want to Say Yes to a Settlement Agreement
There are many good reasons to settle your long-term disability claim through a one-time lump-sum settlement agreement. These could include:
- Paying off medical bills that continue to accrue interest
- Ending the ongoing process of disability claim forms, progress reports, independent medical examinations, functional capacity evaluations, disclosure of physicians statements, and financial document disclosures
- Avoiding video surveillance or insurance disability investigations that invade your privacy
- Ending concerns over changes in your insurance company’s policies, processes, or company philosophy that could cut your benefits short
- Investing the lump-sum payment in an IRA or other financial account that can be passed on to your spouse or children after you die (long-term disability benefits end at the time of the claimant’s death)
- Recovering from your condition ahead of expectations and going back to work (which would end your benefits)
- Finding other business or employment opportunities that allow you to work around your disability (which would end your benefits before you receive a full payout)
- Minimizing any other risks that you might not continue to receive benefits through the maximum period
- Ending your relationship with an insurance company that has been a source of frustration and worry
Why You May Want to Say No to a Settlement Agreement
There are also very good reasons to stay “on claim” with the insurance company. Depending on your condition and circumstances, these could include:
- The offered amount is too low
- Further deterioration in your condition could require more treatment, causing you to burn through your settlement faster than you thought
- You or a family member have trouble managing money and would spend the buyout on other things leaving you unable to pay for future medical and living expenses
- You don’t trust the economy or financial markets to give you a good enough return on your investment to meet your needs
- You may not have other options to pay your bills in the future
- Receiving a lump-sum payment may disqualify you for Medicaid or other forms of public benefits
- Ending your relationship with an insurance company that has been a source of financial security
How a Long-Term Disability Insurance Attorney Can Help
There are a lot of far ranging factors to consider when weighing whether to sign a long-term disability insurance policy buyout settlement agreement. Meeting with an experienced long-term disability insurance attorney can help you put your priorities in order and decide whether it makes sense to say yes.
Your lawyer’s help starts in figuring out just how much of a deal you are getting. He or she can get a written statement from your insurance company describing the value of your policy and its terms, so you know how many more payments you are entitled to, any fees, costs or interest related to the policy or the buyout, and how much the lump-sum is discounted from the total present value of the policy. That way you will have a clearer picture of whether to say yes or no.
Then, the attorney’s office can help you gather up your own documentation, including medical charts and records, explanations of benefits, and past correspondence with the insurance company about your claim. This will help you and the lawyer assess whether the buyout offer is a good choice for you.
Next, a long-term disability insurance attorney can sometimes help you negotiate a more favorable settlement agreement. Your buyout offer isn’t necessarily take-it-or-leave-it. With careful negotiation, you may be able to get more from your insurance company and still put an end to the ongoing hassle and scrutiny.
Finally, your attorney can help you make the most of the lump-sum you do receive. He or she can connect you with financial planners and estate planning attorneys to invest your money and plan for what will happen to it if it lasts longer than you do. The firm also likely has connections to people who can assist with taxes and medicaid planning, so that you can minimize the negative impact of receiving your money all at once.
Deciding whether to say yes to a disability insurance policy buyout isn’t easy. If you have received a buyout offer or settlement agreement, the long-term disability attorneys at Bross & Frankel are here to help. We will review the offer, your financial situation, and your condition, helping you decide whether a buyout is right for you. Contact us or call 856-795-8880 for a complimentary consultation.
Rich Frankel is the managing partner of Bross & Frankel. He is a member of the New Jersey and Pennsylvania bars. He has focused exclusively on disability and social security benefits since 2005.
Mr. Frankel joined what is now Bross & Frankel after having watched his father struggle with disability, fighting a lengthy illness. Mr. Frankel founded the firm’s veteran’s law practice and substantially grew the social security disability practice, focusing Bross & Frankel’s ability to fight for all of the disability benefits available to his clients.
Mr. Frankel additionally fights for clients in court, obtaining frequent victories in Social Security appeals and against insurance companies in Federal court.