Calculate The Total Value of Your Long Term Disability (LTD) Benefit Claim
Whether you’re just applying for long-term disability benefits, fighting a benefit denial or termination, or the insurance company is offering you a lump-sum settlement, you need to know the true total value of your claim for the life of your policy.
To use our long-term disability payout calculator, simply enter the few fields below and click “CALCULATE.”
Your results will instantly appear. Your inputs and results are explained below.
Your Long Term Disability Calculator Results Explained
Your Inputs and Their Significance Explained:
1. Date of Birth
Most long-term disability policies pay to age 65. Entering your date of birth allows the calculator to determine the date you reach age 65, and therefore how many total monthly benefits your policy should pay to the end of the policy payout period. This date is calculated at Line 8 of the Results, labeled “Date Reaches Age 65.”
2. Your Last Date Worked (LDW)
Sometimes LTD insurance companies deny claims without paying any benefits at all. Most long-term disability policies have a six-month “elimination period” before benefits will begin.
Entering your LDW lets the calculator determine when your monthly disability benefits should begin, in the event that you have not yet reached six months after your LDW, or when your benefits should have begun if the insurance company has denied your claim without paying any benefits.
If that’s the case, this date (six months after your LDW) will be calculated and shown at Line 1 of the Results labeled “LTD Start Date.”
This is the beginning date from which the calculator will determine the total number of months from LTD Start Date until the present date, multiplied by your “Net LTD Benefit Monthly” (We explain what that is below). The resulting figure will be your “Past Due Benefits (from your LTD Start Date through the present date)” shown at Line 9 of your Results.
The calculator will also determine the total number of months from the present date until you reach age 65, multiplied by your “Net LTD Benefit Monthly,” to give you your “Future benefits total from (the present date through the date you reach age 65)” shown at Line 10 of the Results.
3. Your Last Date of Long-Term Disability (LTD) Pay (if Any)
Sometimes disability insurance companies pay a claim for a period of time, then terminate benefits, claiming you are no longer disabled. At other times the LTD insurer might offer a lump-sum settlement to conclude the claim. If either of these is the case, then Your Last Date of LTD Pay is the beginning date from which the calculator will determine the number of months from Your Last Date of LTD Pay to calculate your Past Due Benefits and Future Benefits Totals as shown in Lines 9 and 10 of your Results.
4. Pre-disability Gross Annual Wage
This is simply your gross annual wage before payroll deductions for taxes or other benefits. From this figure, the calculator will calculate your Pre-disability Gross Monthly Wage (shown at Line 2 of the Results), your Gross LTD Benefit Annually (shown at Line 4 of the Results), and your Gross LTD Benefit Monthly (shown at Line 5 of the Results). Most long-term disability insurance policies provide for a benefit of 60 percent of gross wages, so the annual and monthly Gross LTD Benefit figures are simply 60 percent of the Gross Annual Wage and Gross Monthly Wage figures.
5. Social Security Disability (SSD) Pay You Receive Monthly (if Any)
Most long-term disability insurance policies allow the insurance company to “offset” the Gross LTD Benefit by any “other income” benefits that you are receiving because of your disability. “Offsetting” the Gross LTD Benefit simply means reducing it by the amount of “other income” you are receiving because of your disability.
The most common of these “other income” benefits are Social Security Disability (SSD) benefits. So if you are receiving monthly SSD payments, you should enter the monthly amount as an input here. If you are not, you should enter 0. This input allows the benefits calculator to calculate SSD Received Annually (shown at Line 3 of the Results).
The calculator will then accurately calculate Net LTD Benefit Annually (shown at Line 6 of the Results), and Net LTD Benefit Monthly (shown at Line 7 of the Results) by subtracting your SSD Benefit from your Gross LTD Benefit figure. If you are not receiving any SSD benefits, then your Net LTD Benefit figures (shown at Lines 6 and 7 of the Results) will be the same as your Gross LTD Benefit figures (shown at Lines 4 and 5 of the Results).
Your Results and Their Significance Explained:
(Result Lines 1-10 are explained in connection with Your Inputs and Their Significance Explained, above. Result Lines 11 and 12 follow.)
Result Line 11 – Present Value of Future Benefits
Knowing the discounted “present value” of your future benefits is important when dealing with “lump sum” settlements. The benefits calculator gives you this calculation at Line 11 of the Results.
So why and what is “present value” discounting?
It’s standard in the legal and financial industry to calculate the present value (PV) of receiving now, all up front in a lump sum, an amount that would otherwise have been paid over the course of a given period of time, like long term disability benefits.
The reasoning behind present value discounting is that you get the benefit of earning interest on the money you receive up front, that the payer of the money would have been earning if the money were paid over a given period of time. If paid over the policy payment period instead of all in one present lump sum, the money, and the interest-earning potential on it, would incrementally transfer from the insurer to you as it is paid you monthly.
What to use as a reasonable rate of return (the “percent PV discount factor”) for the calculation is often a point of argument as well. We argue that for a truly safe, non-risky investment, a 2 percent return is the highest reasonable rate to assume. The insurers like to argue that 6 percent is the more reasonable figure.
The lower the percent PV interest factor used in the calculation, the less the present value is “discounted,” resulting in a higher present value amount. The calculation is more involved than just taking the gross future benefits total and subtracting 2 percent of that figure from that figure. This is because the money, and investment potential on it, transfers a little at a time over time if paid over the course of the policy payment period.
The formula for calculating present value of future benefits is PV = (FV)(1+i)n, where PV is present value, FV is future value, i is the interest rate, and n is the number of compounding periods per year. It’s the same principal as an annuity. Discounting to PV only applies to future amounts owed, not to past-due amounts.
But no need to bother with the equation, as the benefits calculator makes the calculation automatically using a 2 percent discount factor and displays it at Line 11 of the Results.
Result Line 12 – Grand total present value of past due and present value of future benefits through end of policy pay period
Result Line 12 simply adds your Past Due Benefits figure at Result Line 9, to your Present Value of Future Benefits figure at Result Line 11.
When Might a Lump-Sum Settlement Discussion Take Place With a Disability Insurance Company?
If the insurance company believes your claim is strong and valid, it will sometimes make a lump-sum settlement offer out of the blue while it is paying your monthly benefits. This is more common if you have a relatively short period of time before reaching the end of the policy payout period, usually age 65.
The insurance company may be less likely to offer settlement, or may only offer settlement at an amount far less than your Result Line 12 figure, if you have many years left before the payout period ends, especially if the nature of your disability has a strong likelihood of shortening your life expectancy.
If the insurance company denies your claim on administrative appeal, and you file a lawsuit in federal court, the insurance company will sometimes attempt to settle with you instead of fighting the lawsuit all the way to court judgment.
Again, whether the insurer is willing to settle at all, and if so, for how much, will depend on what they think is your likelihood of success at trial, how much time of future payout period remains, life expectancy and even whether your attorney is an experienced Long Term Disability Lawyer who has a reputation and track record of success and willingness to fight until the end.
Should I Expect the Insurance Company to Pay the Figure Shown at Result Line 12 in a Lump Sum Settlement?
The simple answer is no. Since the figure you see in Result Line 12 is the highest possible amount the disability insurer would have to pay you over the life of the policy, it will only settle if it can do so at an amount significantly less than that figure. The insurance company has nothing to gain by voluntarily paying the figure in Results Line 12.
If we are fighting a client’s case in court and feel that the client has a strong case with a high likelihood of a successful court judgment, we will advise the client not to settle unless the insurance company’s offer is reasonably close to the Result Line 12 figure.
Other “Intangible” Settlement Considerations
I’ve had many people call over the years to discuss a lump-sum settlement offer made by the disability insurance company. Most of the time the offers are too low in my opinion, and I advise that they simply stay “on claim.”
But I always stress to them that everyone is different, and every situation is different, and it’s ultimately a personal choice whether to settle.
Some disabled claimants place a higher value than others on the peace of mind of never having to deal with the disability insurance company’s hassle that seems to constantly accompany a paying claim. Re-evaluations, constant requests for medical record updates, and even the common periodic video surveillance do get old. The higher the value one places on ridding their life of these hassles, the less they may be willing to take in a lump-sum settlement.
On the other hand, if the disability insurance payments are the only source of that same person’s income, they may feel the need to forego a settlement offer that is much less than the “full value” of the claim through the end of the policy payout period.
Still others may have found a promising business or work opportunity that they can do and want to do within their restrictions and limitations. If they are confident in the opportunity, but the income it would produce would preclude further disability insurance benefits, they too may find it beneficial to take an offer that is much less than the “full value” of the claim, as they forecast those benefits to end because of the new opportunity.
If the benefits are expected to stop soon, why not get what they can in settlement before disqualifying themselves through the new opportunity?