We receive many phone calls and e-mails from people who want to discuss a settlement offer they’ve received or are curious about a claim settlement from their disability insurance carrier. While a lump sum dollar amount of many settlements may seem big and beneficial, the truth behind these numbers is often harder to decipher. Sometimes, claimants want a disability claim settlement that’s too good to be true, regardless of the high dollar amount that may be associated with it. While not an explicit claim denial, settlement are usually offered to limit or reduce the liability associated with a claim or long term benefit period. Today’s post is going to discuss four different ways to look at these settlement offers and weigh the pros and cons of your possibilities.
- Calculate the present value of future benefits. If you have ever taken a finance class or dealt with investments, the term “present value” may be familiar to you. Although many people recognize the term, they may not understand how it’s used. For the purposes of a claim settlement, present value is the current value of a future payment amount discounted by an interest rate for the passage of time. Using a present value calculator, it’s possible to fill in the variables to see what the present value of your future benefit amounts would be, which you can then compare to the amount of a settlement offer. It’s important to understand that the present value of your combined benefits will usually be substantially higher than the amount of the settlement. Some of the main differences are discussed in the next point.
- Pay attention to the mortality and morbidity rates used in the calculations by the insurance company actuaries. Aside from the interest rate, morbidity and mortality rates are two statistical factors that have the greatest effect on any settlement offered by the disability insurance companies. In simplified terms, morbidity rate refers to the likeliness that a claimant will remain impaired and eligible to receive disability benefits. Mortality rate refers to the length of time that a claimant is expected to live and to receive disability benefits. The figures that are used for these rates are seldom provided or explained in a settlement offer. Having an expert who’s familiar with these rates and how they’re applied can be an important part of evaluating whether the settlement you’re being offered is fair.
- Consider the taxes that may be due on the benefits. One issue of a settlement that is overlooked by many claimants are the taxes that may come due from a settlement. Since this liability doesn’t appear until a tax return (or returns) is/are filed, it may come as a very unpleasant and unexpected surprise to some claimants who used this money to pay for medical treatments or outstanding bills from their inability to work. If you are considering accepting a large settlement, make sure you discuss any tax liabilities with a qualified expert before making any final decisions.
- Consider the emotional and physical stress of the ongoing communications and claim adjudication process with the insurance company. Even if the value of the settlement doesn’t approach the value of continuing benefits, many claimants would rather take a lump sum payment and avoid having future contact with the disability claim professionals working on their claim. Often, the stresses and worries from dealing with these individuals can make many people abandon their disability claim altogether, even without a settlement. Before accepting a settlement for this reason however, it’s important to consider the alternatives, such as hiring a disability claims consultant or an experienced ERISA attorney who can assist with your claim and fight to obtain the benefits you deserve.
While a disability claim settlement offer may seem like a great deal when it’s proposed, significant considerations are required to ascertain the details behind the offer. Disability insurance companies aren’t going to make offers that are detrimental to their bottom line, so it’s important to understand not just your but also their perspectives on the why’s and the how’s underlying a settlement. If you’re medically and financially able, it’s usually best to just continue receiving your monthly benefits and hiring an expert to help with your disability claim if you’re struggling to deal with the on-going communications with and investigations by the insurance company.
If you have any further questions about disability settlement offers or would like specific advice about your claim, feel free to contact us toll-free at (855) 828-4100 or sign up on the right-hand of this page for a free consultation with one of our experts.