If you receive long-term disability (LTD) benefits from an insurance company such as New York Life Group Benefit Solutions (formerly Cigna), Lincoln, Reliance Standard, Prudential, and The Hartford, the company may offer to buy you out of your disability insurance policy. In exchange for a lump sum buyout, you agree to give up your monthly benefits and cancel your disability insurance policy.
It may seem like a lot of money, but is the lump sum buyout offer really a good deal?
Use Our Long-Term Disability Lump Sum Buyout Calculator to See If You’re Getting a Fair Deal
There are many factors to consider, such as the number of future monthly payments remaining, COLA increases, discount rates, and life expectancy. Our lump sum disability buyout calculator below will help you determine if accepting the lump-sum buyout would be better than continuing to receive monthly disability benefits. If you accept the offer, it will be impossible to reinstate your monthly disability benefits.
How an LTD Insurance Company Determines the Amount of a Lump Sum Buyout Offer
Present value is an important concept in the world of finance, and it takes into account the fact that the money you receive today is worth more than the money you receive in the future. To illustrate, if you invest $90.91 today at 10% interest compounded annually, you will have $100 in one year. In this simple example, $90.91 is the present value of $100; in other words, a payment of $100 a year from now is worth $90.91 today.
Present value is also an important concept in the world of disability insurance. Insurance companies use the concept of present value to calculate your LTD lump sum buyout amount, and, as you might expect, the insurance companies will do everything possible to ensure that the calculation works in their favor. The calculation is based on a number of factors, including:
- The value of your policy
- How long the company thinks you will live
- COLA increases (if applicable)
- The likelihood that you will return to work
- The number of payments the carrier expects to make
Once the present value of your claim is calculated, the LTD carrier will offer you a percentage of that amount—usually between 50% and 70% of the total value of your disability claim. It is important to note that these percentages can vary widely. The initial offer may only be a starting point – some insurance companies may be willing to negotiate. A disability attorney may be able to help you in negotiate for a higher amount.
Try Our Free Long-Term Disability Lump Sum Buyout Calculator Right Now
You can use our free lump sum disability buyout calculator to estimate the present value of your disability claim and get a sense of whether you are getting a good deal.
This calculator does the heavy lifting for you and even takes into account a cost of living adjustment (COLA) if your policy has one, past monthly benefits and interest owed to you, and attorney fees and costs. If you don’t need these features, you can simply set them to zero.
Once you enter the required information, the calculator will give you the present value of your policy, taking into account fees and costs. If you choose, it will also give you a detailed report showing the present value of your future payments.
Other Factors to Consider
The present value of your LTD claim is only one piece of the puzzle. It is also important to consider several other factors, including:
- How eager you are to end negotiations with the insurance company
- Whether you think you will be able to find work in the future
- How confident you are in investing the money from your lump sum payment
- Other personal factors relevant to accepting a lump sum.
With all of these issues to consider, the decision to accept a lump sum buyout offer for long-term disability can be difficult. Not only is it difficult to determine whether the amount offered by the insurance company is fair, but once you accept a lump sum LTD buyout offer, the decision is final—you can’t go back to the insurance company and ask for more money. For these reasons, you must carefully consider your options carefully before giving up your monthly disability insurance benefits.