ERISA long-term disability attorneys often talk about appeals and benefit fights with the insurance companies. These happen in many cases where the insurance company wants to save money at your expense.
Usually, you need to fight the insurance company to get the money you deserve for your ERISA long-term benefits claims. However, some cases are very clear-cut and obvious, and you clearly cannot ever work again. In those cases, the insurance company may offer you a settlement. Whether it works for you depends on the facts and circumstances of your case.
Insurance Companies Look for Reasons to Terminate Benefits
When you qualify for long-term disability benefits, you are entitled to payments for the rest of your working life. Sometimes, insurance companies try to terminate your benefits when you receive them. They try to find excuses to cut off your payments, change the definition of disability, or argue that you can go back to work. They may hire people to conduct surveillance on you to see if they can find any reason to deny benefits.
Why Insurance Companies Want to Settle Your Long-Term Disability Claim?
However, there are other cases where it is undeniable that you cannot work again. In those cases, the insurance company may want to settle the case. Alternatively, they can try to save money at a point when your entitlement to benefits is uncertain. They want to move cases off their books and have more financial certainty for themselves and their investors.An insurance company may want to offer you a long-term disability settlement for other reasons:
- They may be trying to cut their own risk in case you win your appeal of their denial of benefits
- They are trying to save money by paying you less than the present value of the money
- They want to close their books on your claim (it may have been agreed to by a subsidiary that the insurance company bought)
- They are trying to catch you unaware of the actual value of your claim and take advantage of a claimant who may not have an attorney
Reasons for You to Consider a Lump-Sum Settlement
If you can negotiate the correct type of settlement, there are reasons why you may want to accept a lump sum settlement.
- You reduce the risk that the insurance company will try to cut off benefits
- You gain some financial certainty for the rest of your working career (assuming the settlement pays you for that long)
- You may earn more on your money if you have it now than if you get it a little bit at a time
- You may protect yourself from a surge in inflation
In the end, you will decide whether to accept an offer based on your particular situation. Settlements may work well for some but not for others. Nobody can require you to sign a settlement agreement because you have legal rights.
Several factors can influence whether a long-term disability settlement is proper for you.
You Need to Trust Yourself to Manage Your Money Wisely
You need to honestly assess whether you can trust yourself to handle the money well and not misspend it. When you enter into a settlement agreement, you release the insurance company from any further obligations to your claim. In other words, you cannot get any more money no matter what.
Your long-term disability settlement represents money that you need in the future to pay your bills and support your family. Too many people spend too fast and then do not have the money that they need in the future. If you are one of those people, you may be better off taking the money one check at a time instead of all at once. The company can control your payments, and you know the money will be there when you need it.
If you do choose to take the money at once, make sure that you have some spending discipline and a very clear plan of what to do with the money. Try to have safeguards to keep you from spending too much of it. Stick to a tight budget that can help make the money last for as long as you need it.
You Will Also Need Money Management Advice
In addition, you must have sound financial advice that can help you, both now and in the future. One of the most important things to understand is how inflation may affect you in the future.
If the dollar’s value falls, it may eat away at your money. If you underestimate inflation, you may overestimate the dollar’s value in the future, leaving you with less money than you need. Therefore, it is best to get financial advice now on what inflation may be in the future.
You should also have access to a financial and investment adviser. You will accept a settlement now because you can do better with your own money through sound investments than by taking set benefits in the future. If you gamble the money in the stock market yourself, you can lose valuable money. A capable money manager can help you use the funds to establish an income stream that may add to your money and leave you better off than if you took the money in the future.
Settlements Are All About Tomorrow’s Dollar Today
The critical question for you is the present value of the dollar. The insurance company has its idea of what a dollar is worth and may use the settlement process to save themselves money. The insurance company thinks they will do better financially if they pay you out now because they believe the money will decrease in value.
On the other hand, you should consider the present value of the money. $100 today will not be worth $100 in the future. It will be worth more because you can either earn interest or investment profits on it. Therefore, the insurance company will not pay you the entire amount of your benefits upfront. They will discount it by a specific rate.
If your rate of return on the money exceeds the discount rate, then a lump-sum settlement may make sense. However, you need enough discipline to keep that money to earn the rate of return.
If you were to be entitled to $10,000 in five years, the insurance company will discount that money by the interest you will earn on the money between now and then.
The insurance company’s game here is to use a higher discount rate so that they can pay you less. An insurance company does not do anything without reason, and they are not in the business of giving away unnecessary money.
Insurance Companies May Have Different Ideas About Your Claim
The insurance company also makes an offer based on how long they expect to pay benefits. They may not want to pay you for the rest of your expected career. For example, if your disability payments are for a terminal condition, the insurance company may try to pay you for the amount of time that they expect you to live.
Before you agree on a long-term settlement, you need to have a sound idea of the discount rate. Otherwise, the insurance company may take advantage of you around the margins. Your attorney will work with economic and investment experts to develop the discount rate that you will use in settlement negotiations.
Consider Your Circumstances Before Entertaining a Settlement Offer
Most importantly, you must know that the insurance company’s settlement offer is fair, and you are not sacrificing money. You can expect that the initial settlement offer will be low. You should take the time to review any offer that you receive carefully.
In evaluating the offer you should consider:
- Your chances of eventually returning to work
- Your age and the number of years left in your career
- Whether you have a strong chance of winning your case if it goes to court
- The discount rate that the insurance company is using to calculate your payment
- The specific terms and conditions of your long-term disability policy
A settlement can be your way of managing your risk. If you receive the offer when your case is pending in court, it is a way to get some money when you have a chance of getting nothing. However, you should not let the insurance company take advantage of you and your fear of not getting any benefits.
Understand How the Insurance Company Reaches Its Own Numbers
Before you accept any settlement offer, you have the right to understand the basis for the insurance company’s calculations. You can ask what discount rate they have used and how long they had expected to pay benefits. Most of all, you have the right to negotiate the settlement offer.
You can counter with a higher lump sum if you feel that the offer is too low. You do not have to accept a lump-sum offer if it is not in your financial interests. The insurance company may try to push you into it because it is in their best interests.
You can also negotiate with the insurance company. If you decide that a settlement may be in your best interests, you can make a counteroffer to the insurance company that more accurately reflects the money that you deserve. The insurance company may raise their offer, and you might progress toward an agreement. You can get the total amount under your policy if you are entitled to benefits. You do not need to accept something lower.
Insurance Companies Can Act in Underhanded Ways Over Time
Just know that the longer you have to deal with an insurance company, the more games they can play to cut off your benefits. You may always have to worry that you will get a letter from the insurance company directing you to show up for an independent medical evaluation to see if you should still receive benefits.
You will also always worry that anything you post on social media can be fodder for an insurance company that wants to finish dealing with you. This desire does not mean that you should accept a settlement offer out of fear. However, insurance companies have terminated benefits with the flimsiest of justifications.
Get Legal Advice Before You Do Anything
The most important thing is to get legal advice about your situation. Never sign any agreement with an insurance company without having an attorney negotiate and review it. There is simply too much money at stake not to have an experienced lawyer advising you, especially considering you cannot earn back any shortfall in the future. The insurance company has quite a bit of power in a long-term disability benefits case, but they do not have unlimited power.
There are many moving pieces with your ERISA long-term disability claim and settlement offer. The one constant is that you need to survive financially when you cannot work and protect your own family. Therefore, your claim is one of the more high-stakes matters you will participate in during your lifetime. Get an ERISA lawyer who knows how to assess your situation and deal with the insurance companies trying to take advantage of you.
An attorney can immediately begin assessing your situation and any settlement offers you received. You will not have to worry whether or not you are making a mistake by accepting an offer or not, as you will have trusted legal advice from someone who handles disability settlement offers regularly.
The stress relief of knowing you are getting enough funds can be priceless, especially if you are dealing with the effects of your disability. You and your family can sleep better knowing the right long-term disability attorney is handling your settlement negotiations.
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 J. Price McNamara ERISA Insurance Claim Attorney, 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