Lump sum settlements of long term disability claims can be difficult to properly evaluate and also difficult to negotiate. For these reasons, you should consult with an experienced long term disability insurance lawyer prior to negotiating or accepting any lump sum settlement offer. Most often, the disabled worker is waiving any and all rights he or she had under the disability coverage in exchange for a lump sum monetary payment. Accepting a lump sum settlement offer is usually a complete and final resolution of the claim that cannot be revisited, so it only makes sense to properly evaluate an offer before you sign away all of your rights in exchange for a lesser sum of money.
As referenced above, the word “settlement” indicates that the disabled individual who is owed monthly LTD benefits is typically accepting less than the full value of his or her disability insurance benefits owed and/or to be paid in the future. The most common situations in which insurance companies negotiate and offer lump sum settlements are as follows:
- Long term disability claims in an APPROVED STATUS (no current dispute regarding payment of monthly LTD benefits): Some insurance companies will offer a lump sum settlement in lieu of the payment of future monthly benefits. We highly recommend that you obtain a copy of your group long term disability policy in order to properly evaluate the lump sum settlement of a LTD claim in an approved status.
- Long term disability claims in a CLOSED STATUS (LTD benefits have been denied or terminated): In most situations the disabled worker must first go through the long term disability appeals process. The appeal process is highly important to preserve and maximize the value to your LTD claim should the appeal(s) also be denied. Some insurance companies may entertain out-of-court settlement discussions while others will not. Once a lawsuit has been filed in a Court of law the insurance company may be willing to entertain settlement negotiations.
The status of your group LTD claim is likely the greatest factor that will influence the value of a potential lump sum settlement. If your claim is in an approved status, the insurance company will likely view its financial liability to be greater if compared to a claim in a closed status. However, there are many, many other factors that will also influence the value of a LTD lump sum settlement. Some of those may include:
- Your age and the possible future duration of your LTD benefits;
- The nature of your disabling medical impairments and other underlying health impairments;
- Your current medical treatment plan;
- The terms of your specific group LTD policy, also considering any limitations or cost of living increases over time;
- The “discount rate” being used to place a current value on the future amount of your LTD benefits ;
- The procedural history of your long term disability claim (denials, terminations, disputes, amount of medical/vocational reviews or exams, etc…);
- The likelihood of medical recovery, return to school, vocational retraining, or return to work;
- The other income offsets that could increase or reduce your LTD benefits over time;
- The opinions of the insurance company’s claim, medical, vocational, and legal staff;
- The reserves being held by the insurance company to pay your claim;
- And the list goes on…
There are many other factors that could influence the value of a long term disability lump sum settlement. Again, we recommend that it is best for the disabled individual to consult with a LTD attorney. Capitan Law offers free legal consultations to help you evaluate your need for legal representation if you are at a point where a lump sum LTD payout has been offered to you or may be of benefit for you to explore.
Other Considerations When Evaluating a Long Term Disability Lump Sum Settlement Offer
The disabled worker will also want to consider other situational factors such as future financial needs, the potential advantage of a lump sum of money, tax liability, potential impact to other employer related benefits her or she may still be eligible for, etc… While our law firm routinely assists our disabled clients in the evaluation and negotiation of long term disability settlement offers, we are not financial planners and, as a general policy, we do not provide tax advice and always defer to our clients’ qualified tax professionals.
Last, we must also note that insurance companies are not under any affirmative obligation to evaluate or negotiate a lump sum settlement of your claim. Settlement offers are mutual, voluntary resolutions of a claim where the parties meet somewhere in the middle. The goal for the disabled worker is clear: to maximize the value of the settlement, but for LTD claims that are currently in an approved status, the disabled worker may be presented with a “take it or leave it” offer that is non-negotiable despite your or your legal representative’s best efforts.
