At some point during your claim, your insurance carrier may approach you with a lump-sum buyout offer. This is a one-time fixed payment also known as a lump-sum settlement or a policy buyout.
The insurer pays you a percentage of the remaining value of your claim. The lump-sum payment replaces the continuing monthly payments. While a buyout involves a large sum of money, it will never amount to the total benefit paid over many years.
You want to be very careful here. Disability insurance buyouts or settlements always call for experienced legal analysis and guidance.
Each long term disability insurance company has its own protocol on buyouts. An insurer’s underlying reason for the offer is always to save money. While receiving such a large sum of money is appealing—especially in dire times— a lump sum settlement offer from the insurance company can be either risky or beneficial for you.
If you do elect to take the buyout, it is vital that the agreement contains the right legal terms and conditions that will protect your rights. An insurer’s first proposal of a lump-sum buyout rarely includes anything that protects the insured. It is drafted to protect the carrier.
With So Much Money at Risk, Attorney Counsel Is Key
If your insurer has offered you a buyout, contact us without delay. Our disability attorneys have extensive background and proficiency in this area. We will help you understand the proposal and its far-reaching implications.
Our negotiation experience eliminates the unequal bargaining position that exists between you and your insurer when establishing the terms and conditions of a lump-sum settlement. We will protect your rights and your benefits, and advise you on every option.
We are familiar with insurance companies’ buyout behaviors.
Lump-sum buyouts are yet another part of the disability insurance corporate culture of reducing costs and minimizing risks. Disability claims adjusters are specifically trained in day-to-day techniques to keep the insurance company ahead of the curve.
Some insurers are known to generally provide an initial offer that is fair and based on sound actuarial principles. These companies may not deviate much from their initial offer — but to know whether their offer is fair, you must know how to properly value the lump-sum settlement.
Other insurers make a practice of lowballing that first lump-sum offer, hoping to pay you the lowest possible sum. Once and done, the claim is closed.
Certain other insurance carriers resort to underhanded settlement practices, including bullying, pressuring or tricking claimants into accepting buyout offers that are unfairly devalued.
Our attorneys have successfully handled hundreds of disability buyout negotiations. We also work closely with disability insurance actuaries who work for you, not the insurance company. We invite you to call us at 866-365-7898 to learn how we can help.
When Do Disability Insurers Offer Lump Sum Settlements?
Disability policy buyouts are offered by insurance companies to minimize losses. Depending on the case, ongoing periodic benefit payments can soar into hundreds of thousands, even millions of dollars.
Rather than pay a monthly benefit for what could be 10 or 20 years or more, their strategy is to offer a percentage of your total future benefits in one upfront check.
In general, insurance companies go after lump-sum buyouts when:
- You have been on claim for several years and your carrier considers you to be totally and permanently disabled. They also factor in your life expectancy, meaning they expect you will live throughout the life of your policy, or close to it. In this scenario, a buyout is highly beneficial for the insurance company because it eliminates many years of monthly payments.
- Your claim was denied or terminated and you file a lawsuit against the insurance company. The insurer turns to its litigation attorneys as to whether they should offer you a settlement and thus avoid costly litigation. They may offer a lump-sum settlement at various stages of litigation, or when you (the claimant) win at trial.** Depending on your policy, at this point other factors can come into play. For example, say you have an individual disability insurance (IDI) policy and prevail in a lawsuit for breach of contract and bad faith. You may also be entitled to back pay of past-due benefits, attorney fees, consequential damages, and punitive damages. At this late stage, it may seem that such financial reparations would outweigh any form of settlement. However, insurance companies have strategies even then. You’ve won your lawsuit, yet the insurer may find basis to appeal the decision to a higher court. Further delay of benefits can be the leverage that will influence you to take a lump sum that is less than the bad faith trial award.
The insurance company can tie up a trial court victory in the court of appeals for years, which they can use as leverage to offer a settlement smaller than the trial award.
- Then there is the scenario where the insurance company has an abundance of policyholders on claim. To cut losses, claims departments often go through cycles where they ramp up efforts, such as buyout offers, to get excessive claims “off the books.”
When should I accept a lump-sum buyout?
A large one-time payment might seem generous and enticing. It is in your best interest to assume that insurers rarely offer a fair settlement with a first offer. Once you accept a lump sum offer, there is no going back.
That said, there are very clear circumstances where, with proper negotiation, a lump sum settlement is a good and beneficial option.
- A lump-sum buyout gives you the certainty of a steady source of money for many years to come.
- You gain financial flexibility that creates security for your family. You may elect to invest in retirement, or pay off debts, or secure new business opportunities or engage in new skills that will accommodate your disabling condition.
- You gain peace of mind that you will no longer have to deal with the insurance company. You will have no further contact, hassles or disputes with the insurer, no worry of benefit termination, no need to submit ongoing medical documentation or IMEs to prove you are disabled, and no more allegations that you can return to work.
Depending on your situation, settlement funds may be tax-free or they may carry negative tax consequences. How your settlement can be structured to consider tax implications is critical.
Policy buyouts should be negotiated by experienced attorneys from start to finish.
A disability insurance lump-sum buyout is yet one more decision that is too important to make without experienced legal counsel. Our attorneys will see to it that not only will the settlement amount be the maximum offer, but that you remain safe from insurance carriers’ selfish intentions.