Long-term disability benefits are typically paid each-month for a contractual period normally lasting somewhere between 5 and 10 years.
While having your claim accepted is a relief, you may not be looking forward to relying on the insurance company in the years to come to pay your benefits each month.
Some common concerns include the following:
- What if the insurance company suspends my benefits?
- What if the insurance company has me evaluated by its doctor and cancels my benefits?
- What if the insurance company decides to conduct surveillance to support suspension of benefits or even worse, a fraud claim?
- What if the insurance company has me reevaluated for my ability to work?
- What if the insurance company goes insolvent or is unable to pay my benefits?
- Why do I have to constantly deal with a constant array of representations, adjusters, and other insurance company personnel to get the benefits that I paid for.
These are all very legitimate concerns that happen to disability beneficiaries on a daily basis. The fact that your claim has been accepted does not necessarily mean that benefits will always be paid. Insurance companies are notorious for aggressively seeking to limit claim payouts even if it means causing its customers anxiety and stress.
The way to sometimes avoid this future uncertainty is to do a lump-sum settlement of your claim. A lump-sum settlement means that you receive all of your long-term disability benefits in a single lump-sum payout rather than monthly benefits over the time required under the insurance policy or plan.
When you do a lump-sum settlement of your claim, you receive a certain amount of money in exchange for closing out and releasing your disability claim. Once you settle your claim, you can not seek additional disability benefits.
The insurance company is sometimes open to a lump-sum settlement because it means it will be able to avoid the ongoing cost of administering the claim. Insurance companies set financial reserves for claims and sometimes simply paying out the claim is a better financial decision rather than keeping the claim open or potentially forcing legal action through suspension of benefits.
How Much is my Lump-Sum Settlement Worth?
There are several factors that help determine the lump-sum value of a long-term disability benefits. The starting point is the monthly benefit that you are being paid and the length of time that you are potentially owed benefits.
For example, if you are receiving benefits of $2,500.00 per month over 6 years, the total amount of future benefits owed is $210,000.00, subject to any cost of living increases provided in the policy.
It is rare for an insurance company to pay the full value of future benefits in a lump-sum settlement. The following factors are important when considering the potential value of a lump-sum settlement.
- Age.
- Length of disability.
- Nature of disability.
- Type of Policy: Own v. any occupation.
- Discount Rate.
- Age: An insurance company will often view a younger person as being more likely to recover from their disability and return to gainful employment. Because of this, an insurance company is going to most likely want a larger reduction in the lump-sum settlement amount.
- Length of Disability: If you only recently began to receive disability benefits, an insurance company is less likely to pay close to the value of the claim.
- Nature of Disability: The medical or psychological issues that form the basis of your disability, play an important role in determining the likelihood of a lump-sum settlement. Some medical conditions can be resolved or improved through treatment whereas others are permanent or will become worse over time. If there is a decent possibility that your medical condition will improve, the insurance company is less likely to offer a substantial lump-sum settlement.
- Type of Policy: Most long-term disability policies are classified as any occupation or own occupation. An any occupation policy means that you have to be unable to work any suitable occupation to recover disability benefits. Own occupation policies pay out when a disabling condition prevents you from working a specific job. If you have an any occupation policy, the insurance company will want to access whether there is a possibility of you returning to work in any job during the payment period.
- Discount rate: The idea of a discount rate is a critically important concept. Discount rate simply means that a dollar paid today (rather than years down the road) will be able to generate interest over time. Because of this, the insurance company will not pay you as a lump-sum the future value of all benefits owed. Rather, it will pay a reduced amount that is negotiated.
How is the discount rate determined? The discount rate depends on a number of factors including expected future inflation and economic growth. In these days of higher inflation, lump-sum settlements should not be significantly discounted because the value of money is decreasing more rapidly.
Strategy for Settling Your Claim
There are many reasons why clients want to settle out their long-term disability benefit claim. Whatever the reason, we strive to understand your goals and work with you to obtain the best possible outcome.
Some cases are not good candidates for a lump-sum settlement. We do not want to give our clients false expectations. Rather, we want you to walk away from the process feeling satisfied. As your attorney, we will treat you with respect and provide you with clear guidance.
Please contact us to schedule a free consultation with a long-term disability attorney. We will discuss your options and work with you to obtain the settlement or resolution that you need. We offer lower contingency fees to clients so there is no fee unless we recover money for you.
Jeremiah Johns is a former insurance defense attorney who now represents plaintiffs in bad faith insurance, catastrophic injury cases, and commercial disputes. He has a unique perspective from his experience representing some of the nation’s largest insurance companies.
Jeremiah is licensed to practice law in Texas, Louisiana, Florida, and Georgia (though he is presently inactive in Georgia). He is also admitted to the 5th Circuit Court of Appeals. For his education, Jeremiah earned an LL.M. in Admiralty from Tulane University, a J.D., cum laude, from Syracuse University, and both a B.A. and B.S., magna cum laude, from Georgia State University.
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