Long-Term Disability Insurance Buyouts: What You Need to Know
If you have a long-term disability, your individual or group long-term disability insurance policy provides you with a monthly income that covers your lost income as a result of your inability to reliably perform the important duties of your occupation. For most families, this constitutes a lifeline and provides a great deal of financial security that you otherwise might lose.
If you’re receiving benefits for a long-term disability, your individual or group long-term disability insurance company may offer you a one-time lump sum payout to buy out your claim. We strongly encourage you to consult an experienced long-term individual disability attorney or top-rated group ERISA lawyer at DarrasLaw to fully understand the offer and its far-reaching implications.
Why Are They Making the Offer?
In short, your individual or group long-term disability insurance company is offering to buy out your claim because it sees some advantage for the company. Insurance companies are constantly thinking in terms of “exposure”—the amount of money they are obligated to pay out on claims. As a result, their shareholders are constantly looking for ways to reduce the company’s exposure and thereby increase profits. This may mean denying insurance to high-risk drivers who have a history of multiple accidents or citations for various moving violations. For purposes of long-term disability insurance, they look for ways to reduce the amount of money they pay out on individual or group long-term disability claims, especially if it appears that they will pay for years or even decades.
Of course, some people ask their individual or group long-term disability insurer for a buyout because the up-front, one-time lump-sum payment may appear attractive for various reasons.
What Is My Individual or Group Long-Term Disability Claim Worth? Is the Offer Fair?
If you’re considering a buyout, the first step is to determine the maximum value of your individual or group long-term disability claim. This is a relatively straightforward calculation: Simply multiply the monthly benefit by the number of months remaining on your claim—typically until you reach age 65 or normal retirement age.
For example, let’s say you are 55 years old and receive $3,000 per month. You expect to remain disabled and unable to work until 65. As a result, you will receive 120 more monthly payment on your individual or group long-term disability claim totaling $360,000. If you’ve already received your offer, you may now wonder why your disability insurance company is offering less than the total benefit.
The individual or group long-term disability insurance company is trying to reduce its exposure and is, therefore, going to pay your claim at a discount. To arrive at the discounted rate, the insurance company will consider:
- Mortality, or the likelihood you will live to the end of the benefit period
- Morbidity, or the likelihood you could recover fully or partially from your disability before the end of the benefit period
From there, the insurance company will incorporate some additional factors such as any cost of living adjustments that your policy provides.
Essentially, the individual or group long-term disability insurance company is trying to arrive at the “present value” of your claim by factoring in inflation and trying to determine the amount it may offer. To put it another way, keep in mind that, due to inflation, your monthly benefit of $3,000 is worth more now than in ten years. As a result, the monthly benefit your individual or group long-term disability insurance company pays you years later will actually cost it less.
This sounds very mathematical, which it is. However, different companies use different interest rates and may calculate inflation, cost of living, and discount factors differently. In addition, it will probably offer you less than the calculated present value for unclear reasons.
What Are the Pros and Cons?
There is no blanket answer as to whether or not you should accept the disability buyout—everyone’s situation is different, and a buyout may make sense for one person and not another. Here are some of the advantages of accepting the buyout, assuming it’s fair:
- You avoid the risk of the insurer reassessing your disability and canceling your benefits
- A lump-sum payment would become a part of your estate, and would pass to your heirs in the event of premature death
- You could invest the settlement payment for a higher rate of return
- You avoid ongoing requests for medical records and examinations
The primary disadvantage of accepting the settlement is that you no longer have a steady monthly income you can depend on. Also, once you accept, you cannot renegotiate if you suddenly realize that your individual or group long-term disability insurance company settled your claim for less than it was worth.
How a Top-Rated Long-Term Disability Attorney or Award-Winning ERISA Lawyer Can Help
If long-term disability buyouts seem simple, and the large sum of money involved can make one seem attractive, they are actually very complicated and the insurance company may offer an unfair settlement. An experienced disability attorney at DarrasLaw can help you evaluate your offer, explain your options, and negotiate the best possible settlement for you.
The DarrasLaw Difference
Most insurance companies will pay your lawyer $1,500 to look at your buyout offer and review your policy. For no charge, one of our skilled disability attorneys will review, evaluate, and perform our own calculations to ensure that the insurance company’s offer is fair and accurate.
Contact the Top-Rated Long-Term Disability Insurance Attorneys at DarrasLaw
DarrasLaw is an award-winning and nationally recognized national litigation firm that focuses on individual and group long-term disability insurance law. The insurance company should have your best interests at heart, but it’s just dollars and cents to them. You need someone on your side to protect your future and make sure you get the best value for the individual or group long-term disability benefits you paid for. For your completely free policy analysis and free claim consultation, contact us today—call us at (800) 458-4577 or contact us online.