Six Common Issues When Settling Long Term Disability Insurance Claims
Your long term disability claim has been denied by the insurance company and you have exhausted all of your appeal rights with the insurance company. You and your attorney have filed a lawsuit in order to recover your past due benefits and reinstate future benefits. Now what happens? Typically, the parties (you and the insurance company) will try to settle the case before the judge makes the ultimate decision. If you are at this stage, there are several issues to consider.
1. The Settlement Will Likely Be A Lump Sum Payment
If you are going to resolve your long term disability claim, the insurance company will most likely want to close the file completely. That means that an agreement will provide a certain sum of money in exchange for the full resolution of the claim. In other words, you will receive a lump sum of money, but will not be eligible for ongoing long term disability benefits. For details, see my post on considerations for lump sum payments.
2. How Much Is Your LTDI Claim Worth?
Valuing your long term disability case is straightforward. The value of the case depends on the amount of the monthly benefit and the number of months left in the claim. The LTDI insurance plan document will provide you with the necessary information to calculate the amount of the benefit and the duration of the claim. You must also pay attention to any benefit offsets, such as Social Security Disability benefits or other sources of income. Again, the plan document will state what offsets apply in your case.
After you have calculated the value of the claim, you should then consider the time value of money. Because you are basically converting a stream of ongoing monthly benefits into a lump sum, a discount must be applied to take into consideration the impact of getting paid earlier on these benefits than would be required under the policy. Your attorney should be able to discuss a reasonable approach to this issue with you.
3. Both Sides Will Evaluate Risk of Not Settling the Claim
After you know the value of your long term disability insurance claim, your attorney should then be able to discuss the chances of winning the case. Your attorney’s experience and research into similar cases will help guide the probability for success. The insurance company with its attorneys will be making a similar risk analysis. A realistic approach to the risks to both parties will improve the odds of a settlement.
4. You Should Know The Potential Outcomes
If the judge decides the LTDI case, you will either win or you will lose. This sounds simple, but not so fast; there are different types of wins or losses. For example, the judge could order that only a portion of the back benefits should be paid. Another outcome is that the judge sends the claim back to the insurance company for further evaluation without ordering any benefits paid. It is extremely unlikely that the judge will order that your future benefits must be paid without any further evaluation by the insurance company. These are issues to discuss with your attorney so you can be prepared for all outcomes and to take into consideration when trying to settle your case.
5. Most Agreements Are Confidential
Almost all long term disability insurance settlements are confidential. You should be prepared to keep the terms of the agreement and the settlement negotiations just between you, your attorney, tax advisor, and immediate family members. Know this will likely be required in order to settle the case before you start the negotiations.
6. There May Be Tax Consequences
I am not a tax advisor and do not give tax advice. However, you will want to consider how each of your settlement options effect your income taxes. Involve a tax expert to make sure you resolve your case in the most advantageous way possible.
Make Sure To Ask Your Attorney Any Questions You Have
Every case is different, so make sure to discuss the above issues with your attorney and bring up any questions you have before the settlement is finalized. A good attorney will keep you informed of your rights and make you aware of the important aspects of your potential settlement. As questions arise, ask your attorney so that you understand what you may be agreeing to.
If your long term disability claim is denied, please contact an experienced Hawks Quindel disability attorney for a free consultation today.
- How to Appeal a Long Term Disability Denial - June 6, 2023
- Liberty Mutual Long Term Disability Claims Now Managed By Lincoln Financial - May 31, 2019
- You Can Receive Worker’s Comp and LTDI Benefits Simultaneously - October 26, 2018