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What is a lump sum buyout?



If you are already collecting benefits, we often negotiate lump sum buyouts on behalf of our clients. And a lump sum buyout is essentially a lump sum amount of money which a disability carrier will agree to give you in exchange for you surrendering your policy. Now there is no requirement whatsoever for the disability carriers to buyout your policy and not every single long term disability carrier engages in lump sum buyouts. However there are a few of the big companies that do engage in these lump sum buyouts.

We probably negotiate around 15 to 20 lump sum buyouts a year for clients and we assist the clients with advising them as to what the appropriate amount would be for a buyout, and then go forward in negotiating through our contacts with many of the disability insurance companies to get them a maximum buyout for their disability policy.

There are 22 opinions so far. Add your comment now.

John:

If you accept a lump sum buyout from your disability carrier for an “own occupation” policy, does your SSDI stop? Or do you request the insurance company include the SSDI compensation in their offer, as SSDI could cancel your coverage?

Attorney Greg Dell:

John,

In most cases a lump sum buyout from a disability carrier will not interfere with an approved SSDI claim.

Regina Moore:

What if I receive backpay that I need because I am a single mom, and I try to get buyout from long term disability company but they sue me and win, how will I pay them back if I have no money? I wonder if you have any advice on how I should go about asking them for buyout of my policy?

Attorney Stephen Jessup:

Regina,

Not all insurance carriers will consider or negotiate a lump sum buyout. It is also important to note that they have no duty to either. Each claim is different and an analysis of the possibility of a buyout involves many factors, to include: who the insurance carrier is, the nature of the disability, amount of time on disability, the language of the applicable policy, the status of any potential offsets (SSDI, Pension, Worker’s Compensation) etc. Due to the foregoing, if you have any questions regarding a potential negotiated lump sum buyout of your policy please feel free to call us to discuss your claim and to determine what assistance we may be to you.

Mike:

I received a lump sum buyout from one disability insurer. I have another disability insurance plan that wants me to list how much I receive from social security and a company paid plan. Do I include the lump sum payout as received on their worksheet? There is no line item except for other income which states money received on a weekly or monthly schedule.

Attorney Stephen Jessup:

Mike,

It is certainly a grey area according to the information requested on the form. Who is the current carrier requesting the information? Were they aware of the other policy? Are there any provisions in the policy that would have allowed them to offset any money received from the other policy?

Tammy:

If you take a buyout claim, does the money have to go in a bank account and can only be used on future dr.appointments?
How much of a percentage of the money do they get to keep if you take a buyout?

Attorney Stephen Jessup:

Tammy,

Unfortunately, I am not sure what you are talking about, but I presume it is a worker’s compensation claim and not a disability insurance claim. If that is the case, you will need to consult with a worker’s compensation attorney.

Chris:

My husband has Multiple sclerosis, which he is on SSDI for; he was recently offered $23,336.09 lump sum cash settlement through his MetLife LTD Claim. The Maximum period permitted under the LTD plan, for total monthly benefits payable is $54,785.55.

We are considering requesting a negotiated amount of $30,016.11;
Are negotiations possible?
Are there any hidden details that we should be aware of?
Is this money taxable?
Are we required to tell SSDI about this money and will it affect his ongoing SSDI monthly benefits?

Attorney Stephen Jessup:

Chris,

That is surprising as MetLife has long held a no buyout offer on disability insurance claims. Please feel free to contact our office as we would very much like to review the letter and discuss with you. With respect to taxation- typically if the benefit is taxable so is the lump sum settlement.

Mary:

Thank you for your advice. My husband’s short term disability recently ended with Lincoln. We have employee policies for short term and long term with them. A month ago we requested the long term as we knew my husband could not return to work. A few days ago we received a letter from Lincoln requesting a good deal of medical records and information from doctors (they already have records from two major operations and surgeons). At the same time we received notification from Social Security stating my husband was approved for SS Disability but that we would not receive the first check until four months from now. We faxed a copy to Lincoln showing the Soc Sec Disability approval. I also called and left messages twice with them. Have not heard back. Will they approve the long term disability payments considering Soc Sec has approved us, or will we still need to attempt to get all of the medical records to them that they requested? Do they tend to honor Soc Sec’s decision? We really need the disability payments now to survive. Their assessment is about $400 dollars above Soc Sec’s assessment per month.

Attorney Stephen Jessup:

Mary, receipt of SSDI is certainly strong proof of disability but that in and of itself does not require an insurance company to approve a claim- they will conduct their own separate independent review of the information.

Mary:

Thank you. I am learning that. It is unsettling, as we only need the payments for a few months but the company has asked for all med. records. Appreciate your input.

Attorney Stephen Jessup:

Mary, please feel free to contact our office to discuss your claim in greater detail.

Charnise:

I notice on several of the inquiries you said Metlife doesn’t offer buy out lump sums. I’m confused because I was offered one through Metlife. I receive $762.00 a month until 2037. They offered me $76,000. I feel it should be more. Could I negotiated more? It’s not even half of what I would get from now till 2037. Taxes aren’t taken out of my LTD, so would I have to pay taxes on the lump sum if so how much is ideal from IRS?

Attorney Stephen Jessup:

Charnise, yes, that is correct – only since last year (2016) have they offered buyouts on policies. We would be more than willing to review the offer letter from MetLife – as well as run our own calculations to determine the sufficiency of the offer. If your benefits have been taxable then the settlement would be as well.

Clipper1160:

I suffered a TBI in an accident, two significant areas of my brain that were damaged involved my short term memory and the ability to use or apply logical reasoning when faced with decision making and all the other accompanying things, depression, confusion, and inability to focus on more that one task at a time. Anyway Metlife is aware of all this. So ssdi granted my ssdi, I was instructed by allsup to watch for back pay and give to Metlife.

Well how I do my banking is I have a debit card. When it is declined I know I’m out of money. I can’t remember if I ate breakfast most days let alone keep track of bank account. I got in trouble with them on an over payment in the past. I received about $13,000 I had to payback at $500 a month. April I’ll be done. Anyway I was going about my business when I thought to call my bank to check balance. And back pay had been deposited and I had spent $10,000 of it with out realizing it. I guess I panicked, I don’t knaround, I know is that all the money is gone and I couldn’t tell you where most of it went. I know I came up with a great way of getting it back. I went to casino a few times. I owe them $35,000. I have no idea how to call them. I fear and dread any contact with them. I’ve heard buy out going around.

I was hoping that maybe I could ask for a buy out pay them back with proceeds. And not have to deal with them all involved know I will never return to work force. What can I expect from Metlife?

Attorney Stephen Jessup:

Clipper1160, MetLife will typically workout some type of re-payment plan for you and they may even be interested in buying your policy out for a lump sum amount. Please feel free to contact our office to discuss your options further.

Shelly:

Met life just offered a lump sum payment. The problem is it is only 50% of what I would get if I continued with monthly payments. Is that a fair amount or will they negotiate with me?

Attorney Stephen Jessup:

Shelly, a 50% offer of the present value of a policy is not a very good offer. However, as MetLife is under no obligation to offer buyouts they are at liberty to set the percentage at which they will negotiate a settlement. MetLife has only been offering lump sum buyouts on ERISA group disability policies since January of 2016, and from my experience do not negotiate the amounts offered. You can certainly ask though. Ultimately, the decision to be made is whether buyout would make financial sense for you.

Randy:

I was just offered a LTD buyout from Met Life and the offer is about 1/2 of what the amount would be if I continued the monthly LTD income from Met Life. Plus that one lump sum would put me in a much higher tax bracket and after I pay taxes on that one lump sum, then I’m getting about 1/4 of what the income would be at the end of my coverage period which is 2027. They called and told me to expect a letter explaining the process, and then sent the letter and I have one month in which to decide. One month from when the phone call was made so now I have 19 days to decide. What happens if I DON’T sign up for their lump sum payout?

Can they legally just stop making payments to me even though I’m still disabled, under Doctors orders and care?

Attorney Stephen Jessup:

Randy, no. If you do not accept the lump sum buyout they will continue to process your benefit on a month to month basis in accordance with the policy. With respect to the timeframe to make a decision it is usually 30 days from the date of the letter and in many cases the letter will have the date. If you were to accept the lump sum you could inquire if they will split the proceeds over this year and next to spread the tax burden over two years instead of one.

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