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What is a lump-sum disability insurance buyout?

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When you're filing for disability benefits, you may have the option of choosing a one-time, lump-sum payment from the insurance company. While this may sound like a great idea at the moment, you should give yourself time to consider all of the facts. If you accept a lump-sum buyout, you will not have a disability claim and you won't have any rights against the insurance company.

Why should you consider this one-time payment? You can do many things with the money you would receive. For example, you can invest the money or use it to start a new business. You may wish to pay for your children's college tuition. You may want to simply put it in the bank and relax in knowing your family has extra security. A lump-sum buyout can also prevent you from having your benefits denied or terminated.

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Why would you reject a lump-sum buyout payment? You could receive an offer that undervalues the future benefits of your policy. A lump-sum buyout is almost always lower than what an insurance company would pay over time. If there is a cost of living benefit, you would lose that in a lump-sum buyout. Should the company believe that you will go back to work or that you may pass away, the offer could be significantly reduced.

This can be a complex situation and it's worth it to learn what an experienced attorney would do in your shoes. An attorney can also help if there is a buyout negotiation. You want to make sure that you receive the benefits you deserve, whether all at once or over time.

Source: FindLaw, "Lump-Sum Disability Insurance Buyouts Overview," accessed Oct. 11, 2016

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