Long Term Disability Lump Sum Buyout or Settlement Information

One of the legal services we offer is to assist claimants with what's known as a lump sum buyout or a disability settlement and those come about in in many different scenarios through the disability companies but I would say on almost a daily basis we're involved in some sort of negotiation of a settlement of a long-term disability policy. So Steve let's start by talking about what is a lump sum settlement. A lump sum settlement is basically one main payout for the remainder of the policy contemplating the future value of the claim. Insurance companies handle them or want to do them for a variety of reasons. Each company kind of has their own program, the way they go about it, the amounts that they'll offer so they each have their own little steps to doing it but it's essentially them just trying to buy back the coverage so you'll no longer receive benefits, no longer have the policy and I think most importantly to a lot of people no longer have to deal or worry about you know having an insurance company in their life. So does a disability insurance company have to offer a claim in a lump sum settlement? No they have no affirmative duty whatsoever at any point to offer a buyout on the policy. Why not? It's not in the policy you know there's nothing written in the policy that requires as an affirmative duty that they have to so it's it's very much up to their discretion. All right let's talk about the factors that go into someone being a candidate for a lump sum settlement. Obviously the first thing being what's the language in their policy? You know do they have an own occupation definition or do they have an any occupation definition? Another factor is going to be what kind of medical condition do they have? Do they just have one that really is going to have no effect on their mortality meaning how long they're going to live because if you have a condition that could be terminal before age 65 or if you had a lifetime policy that's obviously going to have a significant impact on the ability to get a settlement or very often if we see people suffering with cancer they don't even offer lump sum benefits for that until you've been cancer free for probably at least a five-year period. What's another factor dealing with like the financial markets? I think and well one of the biggest things from a financial perspective especially on the employer provided ERISA policies very very very few carriers will even consider negotiating a buyout if social security isn't already in place or other source of other income that allows them to offset your benefit so that's one of the the main reasons and one things that they'll have to look to for that as well. And why do you think these disability companies are even interested in buyouts? I think the biggest thing is if they get to a point where they understand the liability under the policy as such that they don't foresee a chance of finding a reason to deny and faced with paying over the course of you know 10, 20, 30 years we're offering a lump sum buyout now at a discounted rate they can save themselves money over the long run and then also since that policy and those those rights that the insured had under it or over that allows whatever they can do with respect to reserves reinvestment of money that was going you know to be paid out for the claim things along those lines so believe believe us that the insurance company has a huge financial incentive and also you know getting a buyout on someone's policy. And in terms of which of the companies do we commonly see do buyouts because we know not all of them do them but who would you say are the ones who most often do engage in lump sum buyouts? I think the ones are the ones that are probably the larger of the carriers Prudential, Unum, Cigna recently this year MetLife started a program with respect to it. Most of the the major insurance companies on the ERISA side now do them. Right Hartford, Aetna. SunLife will do them. SunLife has their own little nuances to it that are much different but more and more it used to be MetLife when it now MetLife is and all of them kind of have their own criteria some will negotiate numbers some will not negotiate numbers so it really kind of depends on a multitude of factors. Right and I think that you know it's not a very common practice for these companies but we've built these contacts over the years where we're able to two scenarios one is the company may not be looking for a buyout but we approach them on a daily basis to see if they're interested in a lump sum buyout. The other situation is there are circumstances where the disability company will mail a letter to a claimant and say are you interested in a buyout and then we get involved and help to negotiate and maximize the value of a buyout. Very often claimants have a misunderstanding as to where a buyout is going to be like in terms of dollars what's the what's the normal value well there really is no norm in terms of where the value is going to be but it's also a little bit complicated because it deals with present value calculations and so let me just talk about that in a in a nutshell of what that is but let's assume that you have 10 years left on your disability policy and you're getting $5,000 a month so that would equate to $60,000 a year over a 10-year period you would receive $600,000 because $60,000 a year times 10 years so most people who call us go okay Greg my 10 years left my policy's worth $600,000 what can I get well right off the bat your policy's not really worth $600,000 in today's dollars because that's a stream of payments over time meaning they're going to pay you $5,000 a month for the next 10 years so how much money do they have to give you today to equal $600,000 and the reason is how much money do they give you today is because you're going to get interest allegedly on that money while the insurance company is going to get interest and they're going to get at least four percent to five percent I know that we can't go out and get four percent or five percent but the insurance companies can because they sell bonds or invest in different things that us as civilians and meaning non-commercial entities can't do so they're going to assume that you're going to get a money factor on your money the other thing they're going to do no matter what no matter who you speak to they're going to be looking for at least a 25 discount at least and more often more than that so no matter what if they're doing this they're never going to value the claim for 100 percent dollar for dollar they're always looking for at least a 25 percent discount so you know and and the reason for that is because there's risk number one there's no survivorship with a long-term disability claim there's no guarantee you're going to stay on claim there's no guarantee the insurance company is going to be in business so if they're going to pay out money they're looking for a savings and because of that sometimes the settlements work for people and and sometimes they don't so a lot of people call us and say well what's a good number that i should take and we really can't tell you because there's so many factors that go into the determining what the number is and also what's going on in your life and if you have any other sources of income that could affect your benefit like social security a retirement fund a pension possibly another disability policy so steve if someone's considering a lump sum settlement it's really a big decision that they need to think about because they need to understand number one that the benefits are going to end it's over now that's good and bad great in the sense that you have certainty that you know you're getting this sum of money good in the sense that the stress is over you don't have to deal with the disability insurance company anymore not a bad thing but we need to think about is you're going to get this money and if you're disabled and have no other sources of income this is what you're getting so it works for some people and it doesn't work for others but but we'll run through all of those scenarios with you we often suggest that you speak to a financial advisor as well to see you know if if if the amount of money you're going to get is going to allow you to sustain whatever your goals are and everybody has different needs some people just want to buy a house and they're like i don't care i know i'm only going to get x amount but i want to buy a house maybe i'm going back to work maybe i'm coming into money from some other source and it works for me so and some insurance companies require as part of the settlement that you consult with an attorney or a financial consultant with respect to it um you know in their situations where you know you said people ask what's a good number and we can evaluate an offer and say this is a good offer based on the factors but that doesn't necessarily mean it's a smart economic decision for the person right and almost always if you got an offer we're likely to even get increase that offer because of the different scenarios that we understand about the claim where they're not paying you the most and what we want to do is maximize that offer for you and get you as much money as possible so give us a call we're happy to offer you a free consultation and we look forward to the opportunity to speak with you