It may be tempting to accept a lump sum disability buyout or settlement; however, it may not always be the right choice. An insurance company is motivated to offer a lump sum settlement to save costs. Essentially, when the insurance company offers a buy-out, it is requesting that the policy-holder release the insurance company from any obligations it has under the policy to the insured. The settlement is a one-time payment to buy out the insured’s policy. Once the settlement is accepted by the insured, their rights under the policy are extinguished. However, there are instances when a lump sum is advantageous
With the lump sum payment, the insured will receive most of the money they are eligible to receive under the policy at once. Usually, the disability insurance payments cease upon the death of the insured and the amount of the benefits is prone to denials or subject to the insurance company being financially solvent. A lump sum payment removes the uncertainty associated with monthly payments and the risk of future denials.
If the insured is financially disciplined and savvy, a lump sum settlement invested appropriately in an investment or retirement fund can maximize financial income. Also, the lump sum settlement is often tax-free. Additionally, the lump sum payment may be utilized toward start-up costs of a business. After a certain time, if the insured can return to work, they will not be subjected to insurance scrutiny and denial of benefits.
Once the insurance company is released from its obligations under the settlement, there will be no need for the insurance company to monitor the insured’s disability, freeing the insured from constant requests for medical examinations to prove continuing disability.
It is hard to accurately calculate the present value of an insurance policy. Often, insurance companies offer the lowest possible buyout knowing that many will want to accept the lump sum payment to avoid uncertainty and inconvenience of monthly disability payments.
Insurance companies utilize their own formulas in calculating the amounts. The offer is often discounted to reflect the present dollar values of the policy. The present value is the amount the person invests at a given rate that equals the amount the insured is entitled to under the policy.
The present values are less than future values. The insurance companies consider the life expectancy of the insured, the ability of the insured to return to work and the current corporate bond rates among other things to arrive at the number. The insurance companies do not usually pay the full amount of the present value of the policy. Determining the actual value of the policy is complicated. When considering whether to accept such a settlement, consult an experienced long term disability insurance lawyer.
If you were injured at work and are eligible to receive disability insurance payments and settlements, the Pittsburgh long term disability insurance lawyers at AlpernSchubert P.C. can help. For a free consultation, contact us online or call us at 412-765-1888. Located in Pittsburgh, we serve clients throughout western Pennsylvania, including Allegheny County, Lawrence County, and Washington County.
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