The Chanin Building, 122 East 42nd Street, Suite 725, New York, New York 10168

Blog Post

Long-Term Disability Buyouts—What You Need to Know

Long-Term Disability Buyouts—What You Need to Know by Evan Schwartz

Lump sum buyouts of long-term disability policies can happen at any particular time during the course of a claim. 

Claimants need to know that there are opportunities available with some companies, but not with others, to receive buyouts. 

•There are some long-term disability insurance companies who buy out claimants just to get them off the books, rather than continuing to pay their benefits.

•There are some companies who will buy out a disputed, denied or terminated claim before a lawsuit is filed.

•There are some companies who will buy out claims only after a lawsuit is filed, but before the lawsuit moves forward very far.

•And there are some companies who will only consider a buyout after a lawsuit has been filed and the case has been litigated for a while. 

It’s going to vary significantly from company to company, but it’s something that a claimant should always be thinking about or discussing with their counsel. 

Let’s start with the first one, disability buyouts when someone is on-claim, being paid. When someone is on-claim, being paid, and the insurance is not disputing that they’re totally disabled, there are times when certain companies that no longer sell these products may look to get these claimants off the books. The company will contact your lawyer or contact you, and do one of two things: ask whether you’re interested in a buyout or just actually offer a dollar amount with an explanation. 

When that happens, the first thing your lawyer needs to do is determine the value of the benefits that you’re entitled to receive on your long-term disability policy. That means someone has to analyze how much longer you’re entitled to be paid and how much money that amounts to.

In addition, if your benefits are payable either to age 65, for life, or somewhere in between, the evaluation of how long you’re going to live has to also be included in that analysis. This can be a factor if you have a disabling condition that an insurance company, or the health care profession in general, believes might affect you reaching a certain age. Not surprisingly, this is called a mortality rating.

The other factor that insurance companies consider is the possibility that you could return to work in the future, known as a morbidity rating.

Insurance companies always evaluate mortality and morbidity when they are considering and/or making a buyout offer.

I’ll use a perfect example of how insurance companies rate benefits based on mortality: If someone has a mental illness, and the basis of their long-term care disability claim is a form of mental illness (whether it’s depression, bipolar disorder, or some other form of psychiatric disability), the insurance companies will always reduce for mortality the amount of a future benefit calculation, based on a belief that people with mental illness are not going to live as long as people without mental illness.

Insurance companies manipulate these numbers in multiple ways. A sophisticated lawyer in this area needs to understand how the numbers work and how they get manipulated. In addition, no matter what kind of claim you have, the insurance company, because they’re paying you into the future, is going to reduce your benefits to present value. This means that, because a lump sum buyout gets you money that the insurance company would be paying you into the future, now, that lump sum gets reduced by an interest rate that factors in the growth of that money over the period of years the insurance company otherwise would have paid you. For you and your lawyer to properly assess this, you have to know what interest factor (or discount rate) is being used, whether it’s reasonable, and how much it changes the present value of those future benefits. At the end of the day, whether it’s in claim, right before you start a lawsuit, at the start of the lawsuit, in the middle of the lawsuit, or even after a trial, sophisticated counsel needs to understand how these numbers work, to determine whether or not the lump sum buyout that you have the opportunity to receive is fair and reasonable. If you have any questions concerning a lump sum buyout of a long-term disability policy, don’t hesitate to contact us.

Evan-Schwartz

 

Evan S. Schwartz
Founder of Schwartz Law
800-745-1755
moc.c1540206433pwalz1540206433trawh1540206433cs@SS1540206433E1540206433


what our clients say about us

Testimonials

  • We as a society are not prepared to deal with catastrophic illness, and although I was smart enough to have taken out a Long-term Disability policy in my thirties, the

    Long Term Disability Client – California
  • Desperate and devastated with everything to lose, I put my life in the hands of Evan and Michail on faith. In my heart I always believed they would deliver, and

    Lawyer – Oklahoma
  • During the most trying part of my life, Schwartz Law’s attorneys were fighting for my life. I was physically just barely up on my own two feet, with a diagnosis

    Long Term Care Client – New York
  • A company made an error in how they sold me my long-term disability insurance policy and they offered me a lump sum settlement. I did not fully understand the offer

    Physician–New York
  • My claim was denied by my insurance company. My medical condition wasn’t understood by my physicians. My first attorney gave me terrible advice. My family faced financial ruin without the

    Physician – New York

Latest News

Send us a message

Manhattan Offices

The Chanin Building, 122 East 42nd Street, Suite 725, New York, New York 10168

Toll Free: (800) 745-1755
Phone: (212) 608-5445

Garden City Office

666 Old Country Road, Ninth Floor, Garden City, New York 11530

Toll Free: (800) 745-1755
Phone: (516) 745-1122
Fax: (516) 745-0844