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Settling Your Disability Claim

There seems to be an unrealistic belief amongst claimants that settlement of their disability claim is available just for the asking. Nothing could be further from the truth.

There are some insurers who will not approve disability payment settlements under any condition. They take the position that they will stick by the contract and pay benefits as they come due.

There are many factors an insurer considers prior to agreeing to any consider lump sum settlement payment on future disability benefits. First, and most important, is whether your disabling condition will cause serious impairments to your functioning for the remaining period of your disability payments. For insurers, hope springs eternal, in that they will remain optimistic that the claimant will somehow will receive new treatment or somehow miraculously recover and be able to return to productive work.

Along the same vein, should your condition worsen or be expected to result in a premature death, the insurer will wait it out as part of an even more loathsome sense of optimism.

Another aspect is the reserve cost placed on your claim at the outset. This is a projected payment amount estimated by the disability insurer for accounting purposes. This information is not available to the claimant, but remains a consideration for the insurer in the claim settlement process.

Even should the insurer agree to settlement negotiations, a claimant needs to understand some of the ground rules. First, the insurer does not pay the full amount of payments. If you are receiving $1,000.00 per month and expect to receive another 100 months of benefits, your case is not worth $100,000.00. There is a time value to money which is taken into account and only the Present Day Value is considered. Present Day Value is the value of the claim in today’s money, not money that is paid over the course of time. To understand this concept better, imagine that you have money in a interest bearing account. Over time the interest compounds and the value increases over the additive value of monthly payments. In reverse, when interest is taken out from future payments, the amount of the present day value is considerably less than the additive future value of the benefits alone.

Using the same $100,000.00 total benefit example. If you use a reduction rate of 3.5% interest, the present day value of the settlement amount is only $86,628.11.

Of course, asking for a full amount of future payments as settlement will be greeted with a quick “no” from any insurer. There is always a chance of mortality (no matter how slim the chance of an accidental death) and a greater chance of morbidity (death to the disabling or other unrelated illness). Rather, the disability insurer will seek a compromised amount with the compromise heavily favoring the disability insurer.

Even if the disability insurer and the claimant can agree on a settlement amount, the process is still far from over. The disability insurer will insist on many clauses as part of a release of the claim which may include, but is not limited to:

• Release of all claims, known or unknown, against the insurer and the employer’s plan for all times
• Confidentiality and/or Nondisclosure as to the settlement terms
• Nondisparagement clauses restricting unflattering statements about the insurer

On a positive note, there are insurers who will engage in a “pay and close” strategy in which they will pay a claimant for the remaining few months of benefits in order to close the claim file and save on administrative costs. This type of payment is seen only rarely.

As this process is complicated with insurers wanting to take advantage of unskilled claimants, legal assistance from an experienced attorney is absolutely necessary. This is so important that several insurers offer payment to the attorneys just to review the settlement agreement for the claimant.

Posted in General Disability Issues, Long Term Disability, Private Disability Benefits, Social Security, Social Security Disability Benefits | Tagged , , , , |


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