Disability insurance claimants — whether the policyholder is in a short-term or long-term disability plan — may find that their insurer is willing to “buy them out” of their benefits contract and in order to avoid paying benefits into the future. This tactic (in which the claimant is paid a lump sum amount) is often referred to as an insurance settlement.
Insurers have plenty of reasons for attempting a lump sum buyout. Over the length of your disability, the benefits payout may be more costly to the insurer than simply paying a discounted lump sum. Further, the insurer may hope to exercise leverage early on (given the vulnerable state in which you find yourself as a newly disabled individual) to negotiate a more favorable settlement for themselves.
When you agree to a lump sum buyout, you are also agreeing to drop any further claim you may have to benefits under the policy, as well as any related legal claim you may have against the insurer (i.e., a bad faith claim against the insurer for unreasonably delaying or mishandling your application for benefits). Given the necessary sacrifice of your legal rights — and the consequences thereof — it’s critical that you consult a qualified Chicago disability claims lawyer for further guidance on your next steps.
Why Agree to a Lump Sum Buyout?
Beyond the satisfaction of receiving a lump sum of money at once (giving you flexibility with regard to investments, gifting, loan payments, and more), there are a number of potential justifications underlying the acceptance of an insurance settlement.
Before we jump into those reasons, however, it’s worth noting that not every disability claimant should necessarily pursue, consider, or agree to a lump sum buyout. The offer must be considered in the context of your disabling condition (i.e., severity, permanence, mortality, etc.) and various other factors, such as your willingness to engage in an administrative relationship with the insurer over a given length of time.
As for the advantages, consider the following:
- Lump sum buyouts can give you access to a large amount of capital, which you can use to invest, pay off debts, and otherwise plan for your financial future without remaining beholden to the insurer’s future whims regarding ongoing entitlement to benefits;
- Lump sum buyouts can allow you to avoid further engagement with the insurer (i.e., no more administrative hassle and disputes);
- Once you receive a lump sum buyout, you need not worry about fully recovering from your disabling condition “early” and returning to work or pursuing potential new future opportunities for future earnings; and
The Calculus Behind a Lump Sum Buyout
Disability insurance carriers may calculate lump sum buyouts quite differently, depending on their own internal method for evaluating the nature and extent of your disabling condition, and for predicting the length of time for which you will be qualified as “disabled” under the policy at-issue.
For example, if the insurer believes that your condition is quite recoverable and that you will — with regular rehabilitative care — resolve your impairment within two to three years, then it may not be worthwhile for them to make a significant lump sum offer. On the other hand, if you are a young professional and have sustained a significant permanent disability, then the lump sum offer is likely to be much higher in value.
Factors that insurers consider when evaluating the lump sum offer include the:
- Claimant’s age;
- Claimant’s general health and life expectancy (mortality);
- The severity of the disability and whether it can be resolved or improved;
- Possibility of residual benefits;
- Monthly benefits amount;
- Likelihood of succeeding at trial should you litigate their denial of benefits; and
Contact a Chicago Disability Claims Lawyer at Bryant Legal Group for Assistance
Bryant Legal Group, P.C. is a boutique insurance litigation firm based out of Chicago, with attorneys who have decades of experience advocating on behalf of disability insureds in disputes with their insurers.
We understand the complicated nature of such disputes, and the tactics that are most effective for a given set of circumstances. We work closely with clients throughout the litigation process to provide personalized, comprehensive representation — and in conjunction with our extensive background in resolving complex insurance disputes, this enables us to more aggressively represent the interests of our clients. Our case results speak to the efficacy of this approach.