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Everything You Should Know About a Lump-Sum Settlement

Most have heard of a lump-sum settlement before, but many are unaware of some of the implications of accepting a one-time payment.

As opposed to being broken into regular monthly payments, a lump-sum payment is usually a large sum of money that is paid all at once in a single payment.

It’s important to keep in mind that lump-sum payments are not right for everyone in every situation. In addition to receiving the lump sum payment, you will also have to sign a settlement release that forever discharges the insurance company from liability for your disability claim. Essentially, your relationship and any coverage you had under the disability policy is over.

If you’re considering taking a lump-sum payment from your disability insurance carrier in lieu of remaining on the claim, there’s some important information you need to consider. Read on to learn more.

Long-Term Disability Insurance Lump-Sum Settlement Offer

In some cases, long-term disability insurance companies may offer a lump-sum settlement for future long-term disability benefits, rather than maintaining the monthly benefit payments.

It’s critical to consider that these lump-sum settlement offers are usually only for some of your future long-term disability benefits—not all. It is highly unprecedented for an insurance company to offer the full value of your lifetime disability benefits.

If you decide to accept the lump-sum payment, you will no longer be able to receive monthly benefits for your long-term disability and your coverage under the long-term disability policy will end.

There are pros and cons to taking a lump-sum payment. It may be enticing to receive a large sum of money all at once, but it is vitally important that you completely gauge your circumstances and options before making a choice.

Reasons Why a Long-Term Disability Insurance Company Will Make a Lump-Sum Settlement Offer

Keep in mind that insurance companies operate as all other businesses do—to turn a profit. Insurance companies are most likely to provide lump-sum settlement offers when it suits their best interests to do so.

Most of the time insurance companies do this because they believe they will save money in the long run by not making monthly payments to you for the lifetime of your disability.

The following elements are taken into consideration when determining whether you are eligible for a lump-sum settlement:

  • The essence of your disability.
    • If your ailment is not likely to improve, you may be offered a lump-sum settlement for your long-term disability benefits. The reason is that there is a good chance you will be eligible to receive long-term disability benefits for the maximum benefit period. Therefore, the insurance company will more than likely have to pay out the full value of your future long-term disability benefits if you continue receiving monthly payments. Since most settlement offers only cover a portion of your future benefits, when you accept a lump-sum payment, the insurance company can decrease the overall compensation it pays on your claim.
  • How old you are and how long your policy is expected to last.
    • If you’re young, the chances of your disability coming to a conclusion before the maximum benefit period is reached are relatively high. In such an instance, insurance companies are not as likely to offer a lump-sum payment since your ailment may get better and they may have the opportunity to eliminate your payments early.

Important Considerations If You’re Offered a Lump-Sum Settlement for Long-Term Disability Benefits

If the long-term disability insurance company decides to offer you a lump-sum settlement, you’d be wise to take the following elements into consideration:

  • The current value of your long-term disability claim.
    • It’s critical to carefully determine the precise and full value of your long-term disability benefits. When you calculate the full net present value of your benefits, you’ll know exactly how much compensation you stand to lose by accepting a lump-sum payment.
    • It’s important to account for inflation when determining the value of your future benefits. You’ll need to decrease your future monthly long-term payments to the current value in order to identify the true future value of your benefits.
    • After determining the current value of your future benefits, you can compare it to the lump-sum offer. Your calculation of the current value of your future benefits may not match the insurance company’s calculation. It’s wise to attentively review the insurance company’s determinations and seek opinions from a long-term disability attorney and a financial expert to help you decide which option is best for you.
  • Your life expectancy.
    • If you are expected to receive benefits for another decade or two, you’ll want to consider how the value of a lump-sum payment will change as time passes and whether it will continue to provide for you throughout that entire period.
  • Tax implications.
    • Some lump-sum settlements may be taxable. If this is the case, you may stand to lose a significant portion of your compensation award. It’s critical that you discuss the tax implications of your settlement with a professional before making a decision.

Our Team Can Help People with Disabilities

If you need help filing a claim for long-term disability benefits or if you have any questions about the process, don’t hesitate to reach out to our skilled team right away. We are ready and willing to do everything we can to help you now.

Call Dabdoub Law Firm today at (800) 969-0488 to speak with an experienced attorney about your case.