If you are receiving long-term disability payments from your insurance company based on the provisions of your policy, the company may attempt to buy out your policy by offering you a lump sum settlement payment now in exchange for your policy. Alternatively, the company may attempt to buy out your claim by the same methodology.
While the latter happens rarely, the former happens quite frequently. In either case, the company doesn’t want to remain “on the hook” for its long-term disability payments any longer than it has to. The more money it pays you over time, the greater its losses. Therefore, the buyout offer is the company’s attempt to cut its losses by considering a number of factors, the two most important of which are the following:
You can calculate your insurance company’s maximum exposure quite easily. For instance, assume you currently are 50 years old and your long-term disability benefits pay you $5,000 a month until you turn 65. That represents $60,000 a year for 15 years, or a total of $900,000 maximum exposure for your insurance company, assuming you remain disabled throughout this 15-year period.
Don’t assume, however, that you’ll receive a buyout offer of $900,000. You won’t. Instead, the company will calculate the present value of the settlement it offers you now; i.e., the amount of money (substantially below $900,000) it must pay you so that, when you deposit it, it will accumulate interest that will allow you to continue drawing out $5,000 a month until you turn 65. Determining the present value of money is a complicated procedure based on interest rates, and different companies use different interest rates in their calculations. In addition, the present value figure they arrive at is only their starting point when determining how much money they will offer you as a lump sum.
Unless your policy specifically provides for a buyout, your insurance company is not legally obligated to offer you one. Some companies, such as Guardian and Northwestern Mutual, traditionally have not done so, while others, such as Unum, have traditionally used this practice when they think it’s to their advantage.
If your company does buyouts, be aware of these three things:
Whether or not a lump sum buyout is in your best interests takes careful thinking, calculating and planning on your part. You likely will require help from a knowledgeable and experienced attorney in order to make the best decision based on all the circumstances of your current situation and expected future circumstances.
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
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
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
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
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
The Chanin Building, 122 East 42nd Street, Suite 725, New York, New York 10168
Toll Free: (800) 745-1755
Phone: (212) 608-5445
666 Old Country Road, Ninth Floor, Garden City, New York 11530
Toll Free: (800) 745-1755
Phone: (516) 745-1122
Fax: (516) 745-0844