Lump-Sum Policy Buyouts
Insurance companies sell disability insurance polices with the hope that they will never need to pay monthly benefits to an insured. Once an insurance company becomes obligated to pay an insured monthly disability benefits, the insurance company is losing money. In effort to cut their losses, most disability insurance companies are always interested in the opportunity to buy-out an insured’s disability policy for a one-time lump sum amount.
We have represented hundreds of individuals in an effort to obtain the maximum lump-sum buyout possible. We work closely with actuaries, financial consultants and treating physicians in order to maximize a buy-out offer.
Every insurance company has their own methodology and formulas for determining the value of an insured’s disability income policy. As a result of handling buy-outs with almost every disability insurance company, we are well aware of each company’s valuation methods. There are multiple factors involved in determining the value of an insured’s disability income policy. Some of the factors that insurance companies will consider are:
- the life expectancy and mortality of the insured;
- the current corporate bond rate;
- the likelihood that the insured will remain totally or residually disabled;
- the amount of insurance company reserves for the specific policy;
- the present value of future monthly disability benefits;
In every lump-sum policy buyout, the insurance companies will make an offer that is discounted to present value dollars. This means that if the future value of an insured’s disability payments in 15 years would be $900,000 ($5,000 a month multiplied by 180 months), then the present value is the amount of money an insured needs today at a stated interest rate in order to equal $900,000. Assuming a $5,000 monthly benefit, 15 years of remaining payments, and an interest rate of 5%, then the present value of $900,000 would be $450,000. This means that if you deposited $450,000 in the bank today and received an interest rate of 5%, then you would have $900,000 15 years from today. The present value amount is always less than future value. As a general rule money will double every 15 years at an interest rate of 5%. Insurance companies will never pay 100% of the present value, since there is no financial benefit to them to do so. They will however, use the previously stated factors in arriving at a buy back amount.
Lump sum buy backs are not advisable for everyone. However, they often make sense for an insured for the following reasons:
- cash received is often tax free to be invested as you desire;
- no risk of future denials or uncertainty of upcoming benefits;
- monthly benefits end at the death of the insured;
- cash received now can be used for estate planning or new venture;
- no longer subject to insurance company solvency;
- ability to try a return to work without insurance company scrutiny.
If you are interested in pursuing a lump-sum disability buyout contact Attorneys Dell & Schaefer to make sure you are receiving the maximum buy-out possible. We work closely with actuaries and financial consultants in order to maximize your buy-out.
Lump-Sum Policy Buyout Related Cases
- CIGNA pays disability benefits for 10 years, offers a lump sum buyout and then denies disability claim
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