How Much Will My Long-Term Disability Buyout Be?

How are disability insurance buyouts calculated? How can you be sure you're getting a fair deal? Hi, I'm Mark Whitehead, founder of Mark Whitehead & Associates, a national disability law firm. To calculate the buyout value of the disability benefits you're entitled to under your policy, we start by determining two things. First, how long your benefits are to be paid, and second, how much money that amounts to. We start by calculating the amount of your future potential benefit. This projects what the monthly benefit will be worth from now until the end of your benefit period, as stated in your policy. For example, your policy might state the benefit period is for five years, or until age 67, or your Social Security retirement age, or for your lifetime. Next, the insurance company may offer to buy out your claim, but if they do, it will be at a To discount the value of future disability payments, the insurer will reduce the future potential benefit to what's called its present value. Calculations to obtain the present value will reflect inflation. The insurer will also apply an interest rate. That rate can greatly impact the buyout value, as higher interest rates result in a lower lump sum buyout offer. The buyout calculation also considers the insurer's reserves. Every insurance company is required by state legislation to hold reserves. The company may set aside a portion of their assets to remain financially able to cover your policy and any future claims. We also look at the following factors. A cost of living adjustment benefit should be included if the policy provides for it, and should clarify whether it's paid for in simple or with compound interest. Because benefits are to be paid from now until retirement age, or some other future time, how long you're expected to live is included in the valuations. This is called the mortality rate. If the insurer holds that you have the potential to go back to work, it will assess rating that as well. This is called the morbidity factor. Insurers generally build a profit margin into the calculations, so that's also accounted for in your disability insurance buyout. Although lump sum settlements are based on actuarial data, insurance carriers often manipulate the numbers in ways that benefit their company, and not the policyholder. We never assume the insurer's present value calculations are correct. Our attorneys are prepared to deal with all of these issues. For more information, visit our website at www.disabilitydenials.com or call 281-914-4940 to discuss your particular disability issue. I'm Mark Whitehead. Thanks for watching.