In the context of this article, it’s important to distinguish between long-term disability buyout and settlement offers. A buyout offer is extended by the insurance company while you are actively receiving long-term disability benefits. A settlement offer, on the other hand, arises when you have been fully denied these benefits and are in the process of negotiating a resolution with the insurance company, either immediately before or after initiating legal action. This distinction is very important.
Differences Between Settlement Offers and Buyout Offers
Let’s go back to buyout offers for a moment.
Again, buyouts are only when the insurance carrier has acknowledged that it’s supposed to be paying you benefits and is paying you benefits, but they want to give you a one-time lump sum settlement to buy you out. In the long run, this will save the insurer money that it would have otherwise paid over the lifetime of the claim. Because they have acknowledged that they are supposed to be paying you benefits, they may pay a higher percentage of the total value of the claim.
A lot of people go online, and they read about how when you receive a buyout offer from an insurance company, you may be able to receive 50, 60, 70, even 80% of the total value as a settlement as part of the buyout. Those percentages are totally different in a situation where the insurance company has denied your claim, and you’re trying to do a settlement.
Let’s give you an example: You’ve had to sue the insurance company to get your benefits, and you’re about to go to mediation. In that type of situation, we’ve oftentimes seen that the insurance company is only willing to settle that claim for less than 50%. A lot of people come to us and say, “But wait a minute, I did my own research online. I see that insurance companies will settle cases for 50 to 80%.”
We have to explain to them that that situation is totally different because the 50 to 80% range applies when they’re already paying benefits like they’re supposed to. In the latter situation, in litigation, they’ve already said that they don’t think they should be paying benefits. As a result, those have a lower value and typically settle than less than 50%.
Again, those are situations where the person is already receiving benefits. This is all very highly technical. You should not make a decision without consulting with an attorney about the individual circumstances of your case.
If you have been offered a lump sum settlement payment, we understand that most claimants are tempted to accept a quick cash payment because they are suffering financially as a result of their disabilities, but you should decide whether or not to settle very carefully. The insurance company will assess the value of your disability claim from their perspective, which carries the risk of potentially undervaluing your case.
Factors to Consider Before Accepting a Lump-Sum Buyout of Your LTD Claim
Before accepting a lump-sum buyout offer you should understand your legal rights, the value of your claim, and what it will take to fight back against a low-ball offer from the disability insurance company.
You can use our lump-sum disability settlement calculator to gauge the fairness of the offer at hand, and an experienced long-term disability insurance attorney can assist you in assessing other important elements of your claim, including:
- The current monetary worth of your claim;
- Living expenses and inflation;
- Life expectancy and mortality rates; and
- Tax implications.
If you think the offer you received is too low, a disability lawyer may also be able to assist you in negotiating for a higher amount.
The insurance company might press you to make a hasty decision, but it’s important to carefully evaluate all your available options first. Opting for a lump sum settlement represents a conclusive arrangement between you and the insurance provider. The most important thing to remember when negotiating is to make sure that the lump sum settlement will meet your needs throughout your life.
