Lump Sum Disability Insurance Buyouts

Long term disability insurance companies make money by not minimizing the amount of benefits paid out on policies. To them, the perfect customer is someone who will never need monthly long term disability benefits. Once an insurance company becomes obligated to pay you monthly disability benefits, the insurance company is losing money and cutting into its profits. To try to minimizes their losses, many long term disability insurance carriers will offer a lump sum disability insurance buyout to an insured who is receiving monthly payments. Virginia long term disability attorney Corey Pollard of the disability law firm of Jenkins Block & Associates can help you decide if a lump sum buyout is your best option.

We represent individuals with serious injuries and disabilities, and can help you try to obtain the maximum lump sum disability insurance buyout possible. We can work with actuaries, financial analysts, and your treating physicians to maximize the lump-sum buyout offered.

There is no set formula for determining how much money the long term disability insurance carrier will offer. Each insurance company has its own methodology and formulas determining the value of your long term disability income policy. That being said, most insurance carriers evaluate the following factors when deciding how much to offer you:

  • Your current age;
  • Your life expectancy;
  • The current corporate bond rate;
  • The likelihood that you will remain totally disabled or residually disabled;
  • The amount of reserves set aside by the disability insurance company for your policy;
  • The present value of future monthly disability income benefits potentially owed to you.

When making a lump sum disability insurance buyout offer, the insurance company will offer an amount discounted to present value dollars. For example, let’s say the future value of your long term disability policy over the next 10 years is $600,000 ($5,000 a month multiplied by 120 months). The present value is the amount of money that you would need to be able to invest today at a stated interest rate to receive $600,000. If you have a $5,000 monthly benefit, 10 years of remaining long term disability payments, and an interest rate of 5%, the present value of your policy would be $368,347.95. In other words, if you put $368,347.95 in the bank today and invested it at an interest rate of 5%, then you would have $600,000 in ten years. Present value is always less than future value.

The insurance carrier will never offer 100% of the present value of your long term disability insurance claim. Why? Because there is no financial benefit for it to do so. The insurance carrier will, however, take these factors into consideration when offering a lump sum disability insurance buyout.

Not everyone should accept a lump sum disability insurance buyout. Some of you, however, should consider accepting a fair offer. Here are some reasons why:

  • You avoid the risk of the insurance carrier denying your claim or suspending benefits for no reason;
  • Monthly disability income benefits end at death;
  • Cash received in the buyout is usually tax free;
  • Cash received can be used as you wish;
  • You do not have to worry about the insurance carrier staying solvent to receive payment;
  • You can try to return to work without worrying about the insurance carrier cutting off benefits because you are doing so.

Not sure if a lump sum disability insurance buyout is for you? Contact Richmond long term disability lawyer Corey Pollard today to evaluate your options and make sure you receive the maximum compensation possible. Call 804.251.1620 or send us an email to discuss your long term disability policy questions.