How do Insurance Companies Calculate Lump Sum Long-Term Disability Settlements?



3 Minute Read from Hamilton’s Disability Lawyers

Can your long-term disability insurer pay you out a lump-sum instead of paying your monthly pre-determined long-term disability benefits?  The answer is yes, but it is not an easy solution to attain, and certainly not a solution that you can achieve on your own without the guidance of a Hamilton disability lawyer.

Secondly – if you have been denied long-term disability benefits you should never engage the services of a long-term disability lawyer with the intention of settling out your long-term disability claim for a lump sum value. Instead, if you have been denied or cut-off long disability, your long-term disability lawyer would file a lawsuit seeking a “declaration” that you are totally disabled and entitled to payment of long-term disability benefits for the duration and extent of your disability as provided for in group or private long-term policy.  You would also seek payment of long-term disability benefits at the monthly rate stipulated in your long-term disability policy from the date of denial (or cut-off) and for the duration and extent of your disability.

Put more simply, if you have been cut-off or denied long-term disability, your Hamilton disability lawyer will be asking a Trial Judge to declare that you are disabled as per policy definition, and to provide you payment of benefits from the date you were denied or cut-off your monthly benefits to the date of Judgment. A payment for future lump sum disability benefits is not available for a Trial Judge to order, since you are seeking a declaration based on contractual stipulations.

How do long-term disability settlements happen?

Typically, disability settlements occur when your long-term disability lawyer and the insurance company agree to either mediate or settle your long-term disability claim, long after your lawsuit is filed. A voluntary mediation, if agreed to by both parties, can often result in the settlement of your claim if disability underwriters assess significant risk in your case – assuming a neutral, experienced and effective mediator is retained.

Again, claimants should never hire a disability lawyer or approach LTD litigation with the expectation of a “buy-out” Rather, claimants will need to try the disability case by Judge alone and, if successful, have the Court declare that you are totally disabled and entitled to payment of long-term disability benefits for the duration and extent of your disability as provided for in your group or private long-term policy.

How are long-term disability settlements calculated?

Long-term disability settlement are for the most part, not overly difficult to calculate – but they require the assistance of experienced Hamilton disability lawyers.

Firstly – settlements cannot occur without knowing the details of the policy, such as:

-What type of policy are you dealing with?
-Is this a group or private policy?
-What are the exclusions, if any?
-Is the policy indexed to inflation?
-Are there any policy riders concerning total disability?
-What are the exact total disability definitions in the policy?
-What is the policy holders date of birth?
-What is the date of disability?
-What is the exact benefit amount?
-What is the extent of the waiting or elimination period?
-What is the LTD commencement date?
-What are the LTD Benefits that have been paid?
-Are the benefits taxable?
-Are there tax implications involved with settling the LTD claim?
-When is the Change of Definition?
-What effect does a lump sum settlement have on the possibility of termination?
-What effect will a lump sum settlement have on the effect of a pension plan?
-What is the maximum benefit date – or when do the payment streams end?

Secondly, there are many offsets that need to be considered such as CPP Disability. Many, if not all group policies call for collateral benefit deduction. CPP is almost always a guaranteed set-off.

Thirdly – before we discuss a full and final settlement amount with our clients, they need to be fully aware of any type of assignments or subrogation issues to ODSP, Ontario Works or Welfare ect. This will further reduce the amount of your settlement.

Also – are there litigation loans? These need to be repaid.

It’s also important to understand that the present value of money is always less than or equal to the future value because money has interest-earning potential. Therefore after offsets for CPP, for example, have been applied, lump sum payments will almost always be discounted in order to account for the present-value of what tomorrow’s money is worth today.

Then, after all this is taken into account – the risk of litigation cannot be forgotten. This can result in a further discount.

-Does the claimant have credibility issues?
-Is there damaging surveillance?
-Is there damaging social media?
-Is there a chance the claimant will die prematurely?  
-Has the claimant followed proper treatment plans and protocols as set out in their disability policy?

What option is best when approaching the settlement of an disability file ? A lump sum Settlement or being put back on claim?

This is not an easy question to answer. Many times, claimants will not have received disability payments for months and they may be financially destitute. Families may be impoverished and forced into crushing debt. Other times, the spouse may make enough money to carry the family until monthly benefits can be reinstated. The decision is often personal.

The advantage of settling your LTD claim is that it may be a win-win for you and the insurer, meaning that you could end up with a lump sum of investable income and at the same time end your possibly soured relationship with the insurance company.  Similarly your insurance company can dispose of it’s risk but “getting you off the books”.

By the time mediation is reached, most, if not all claimants have zero faith left in their disability carrier. Many feel that there is virtually no hope that if, put back on claim, they will continue to permanently receive the benefits that they deserve (although future adjustment can be negotiated). For many sick and hurt people, risk tolerance is often dead by this point.

Essentially, the decision all comes down to the disability claimant’s position in life and the ability to manage a lump sum of money properly.  What option is best depends in self-analysis.

Have you been denied or cut-off long term disability benefits?

If you have been denied or cut-off long-term disability benefits it is important that you speak to a disability lawyer as soon as possible in order to weigh your options and decide whether disputing your denial for benefits is in your best interest . Contact us for a free no-obligation consultation by calling us at 905-333-8888 or by filling in a contact form. Alternatively, you can chat with out live agent in the bottom right corner and schedule a convenient time to talk with one of our Hamilton Disability Lawyer.