Long-term disability claims are a high-stakes matter for you and the insurance company. A long-term disability claim is often worth far more than an SSDI claim. While the average SSDI benefit may pay roughly $1,300 per month, a long-term disability claim will pay you a percentage of your salary, so long as you remain eligible for benefits.
If your long-term disability claim is successful, you may be offered a settlement by the insurance company. The company benefits from closing out your claim now, so it can satisfy its obligation and take it off the books. The insurer may even pressure you to accept a settlement offer.
From your standpoint, you should only accept a settlement that pays you what your claim is worth. You are under no obligation to accept this offer. Sometimes, it may make sense for you to take your money now. Before you begin to entertain a settlement offer, you must know the value of your claim.
An experienced ERISA attorney can help you negotiate a settlement with the insurance company. You must be aware of the tricks that the insurer may use to reduce the value of your claim. You can and should negotiate with the insurance company. Otherwise, you may end up leaving money on the table.
What are my disability benefits worth?
There is no set formula to determine the value of your disability benefits. Your claim has its unique valuation based on your situation. The insurance company adjuster will consider several factors before making a settlement offer.
Below are some of the things that may go into determining what your claim is worth.
Your earnings before your disability or injury
Long-term disability insurance will pay you a percentage of what you made before your disability kept you out of work. This percentage is usually 60 to 70 percent up to a certain annual cap. The insurance company accounts for present earnings, and it does not consider what you may make in the future based on possible promotions (unlike the lost wages component of a personal injury case)
As a higher-paid worker, your claim can be worth more because it reflects the actual wages that you earned. However, your payment may not reflect the total value of what you earned.
Your age before the injury or disability
Long-term disability insurance benefits are supposed to pay you for the rest of your working career. The intention is to replace the earnings that you should have made from your job. As a younger worker with more time left to work, you can expect your claim to be worth more than an older worker towards the end of your career.
The expected duration of your claim
Not all long-term disability claims are permanent. Sometimes, the insurance company believes you will return to work. You may need to undergo periodic examinations to see whether you are in a physical condition to return to work. The insurance company may take a more aggressive view that you can resume working, even if you do not believe that you physically can.
Your policy may change after a set time frame. Initially, you may receive benefits if you cannot do the job that you had before your disability. This can change after a set period when you only qualify for benefits if you cannot return to any work at all. If the insurance company believes that your condition will allow you to return to work at some point, it may result in a lower settlement offer.
The average duration of a long-term disability claim is 2.5 years. However, consider the expected duration of your specific claim because it can last considerably longer. You may need to file a claim for a permanent, disabling condition.
The present value of money
Present value has become a more complex calculation today than in the past because we are currently in a high inflation environment. Simply stated, a dollar does not have a constant value. A dollar today is worth more than a dollar tomorrow because of the effects of inflation. When negotiating for tomorrow’s dollars, you must consider that the dollar will be worth less in the future. Present value discounts are one area where the insurance company tries to play games and reduce the value of your settlement.
What is the total value of my disability benefits (claim)?
Your attorney will start with the total expected value of your claim and use it as a starting point for settlement negotiations. For example, if you were making $80,000 per year and your policy paid you 60 percent of your earnings, you should receive $48,000 per year in benefits. If you had 20 years left in your career to work, you might receive $960,000 in total benefits.
However, the total value of your claim today is not $960,000 because there is a present value discount applied to it. The insurance company will invest a lower amount of money and earn money in the stock market to get to the $48,000 that it needs to pay you every year.
Therefore, the total value of your claim today is not the same as the overall amount of benefits that you receive over the life of your claim (assuming the insurance company keeps paying you for the entire duration, which is a valid concern).
How to calculate the total value of my disability benefits (claim)?
First, you need to figure out what the value of money may be in the future. If a court is calculating the total value of your benefits, it will likely apply a rate depending on the interest rate of an equivalent treasury bond.
The thinking is that you can invest the money you get today and turn it into more money in the future, assuming a certain rate of return. If you were to get the total value of your disability benefits today, you might end up with a windfall because you can invest the money and end up with more than your benefits.
You apply the discount rate to the total value of the benefits you are due to receive for the rest of your career. That should give you a total value of your claim today if you negotiate a settlement with the insurance company.
Of course, you always need to keep a close eye on the discount rate the insurance company adjuster uses for the settlement offer. They may discount the payments more to save money on a settlement. Therefore, you need an experienced long-term disability insurance attorney to help you calculate what you may be due.
What is a fair lump-sum settlement value of my disability benefits claim?
You may decide to take your disability benefits all at once.
You may want to do this because:
- Taking all your money at once can reduce the risk that the insurance company might cut off your benefits after you start receiving them, leaving you without a source of income.
- You may want to hedge your litigation risk with the insurance company, especially if it has initially denied your claim and you are fighting them in court.
- You may think that you are better off when you have your money now and can invest and manage it as you want – having the money now may give you financial freedom and flexibility.
You may want to negotiate a settlement now. A dollar today is not worth the same as a dollar tomorrow. A present value discount applies to the money before you get it.
A lump-sum settlement value calculates what you will get in the future, discounts it, and gives it to you now. The lump-sum settlement value is not necessarily a uniform number because there are plenty of areas where you and the insurance company may disagree,
How to calculate an acceptable lump-sum settlement of my disability claim
You can assume that the insurance company will not pay you a penny above what it has to.
The insurer enters into settlement negotiations for one of two reasons:
- The insurance company wants to clear the claim off its books now, knowing that it will need to pay you years into the future.
- The insurance company wants to save money and reduce its risk when your long-term disability case is in lengthy litigation. Not only does the insurance company want to pay less in benefits, but it also does not want to pay an insurance defense lawyer to oppose your lawsuit.
However, the insurance adjuster may take some liberties with the inputs into the model they use to calculate your settlement offer. They will begin negotiating based on a lower amount to save money and give themselves room to raise the offer.
If you take less than you deserve because you need the money, and the insurance company has you over the barrel, then your claim is worth less. That is exactly why you should hire an experienced attorney, so you can avoid this situation and maximize the value of your claim.
There are two primary things that you need to know to calculate the lump-sum settlement value of your disability benefits claim:
- The amount of payment that you will receive now and in the future if you were to get monthly benefits
- The discount value to apply to the total amount of disability payments
However, the insurance company does not just get to dictate what you can receive in a settlement. Nothing says that you have to accept a settlement in your case. If you have a legal right to long-term disability benefits, you deserve the full payment. You might accept a settlement agreement because it works for you in your situation.
If the offer is not enough money, you can elect to receive the regular payment from the insurance company, as required by the terms of the policy. If you are in litigation, you can continue to pursue benefits in court because the insurance company needs to pay you for the full value of back benefits.
In some cases, the insurance company may make a settlement offer during pending litigation. The adjuster may have denied your initial claim, and you can be in the middle of a long and drawn-out court case while you fight for benefits.
In this case, you must consider the likelihood of success when you calculate the value of your claim. If you have a 50/50 shot of success in court, it may mean that you should be willing to accept less than 100 cents on the dollar in a settlement negotiation. However, never let the insurance company take advantage of any uncertainty to keep you from getting what you deserve. Your attorney will stand up for you and fight to keep you from being short-changed.
Call an Experienced ERISA Long-Term Disability Insurance Attorney Today
The right long-term disability insurance lawyer can work with you at all stages of the claim process, from the claim filing stage to appeals to settlement negotiations. A trusted attorney will fight for you if an insurer denies your claim and can represent you if you must go to litigation. They can also negotiate a settlement offer on your behalf, calculating the value of your claim and making sure that the insurance company is not putting one over on you with its offer.
You never want to accept a claim denial or settlement offer just because the insurance company said so. Disability insurance companies are not on the side of claimants, and the law is also not claimant-friendly. You need an advocate during the disability claim process, so contact a lawyer today.
Following graduation from Loyola Law School in New Orleans in 1990, Price McNamara served as a Federal Judicial Law Clerk to the Honorable John M Shaw, Chief Judge, United States District Court Western District of Louisiana.
Mr. McNamara founded the Law Offices of J. Price McNamara, and began putting his past experience to work for the injured and disabled clients he now represents against the insurance companies in personal injury and long term disability and other insurance disputes in both federal and state courts