People buy disability insurance to provide financial assistance in the event that they become too ill or injured to work. If this happens, they file a claim with their insurance company to collect disability benefits. After a disability benefits claim is approved, the insurance companies will sometimes offer the policyholder what is known as a “lump sum” settlement instead of a structured settlement payout.
What’s the difference?
A structured settlement is one in which the claimant receives a portion of their claim benefits on a scheduled periodic basis. A lump sum settlement is one in which the insurance company makes a single payment in order to settle a case. Lump sum settlements are also known as “buyout”, “washout” or “walk away” settlements because once the lump sum has been paid, the claim is considered closed and no additional benefits will be paid.
Why do insurance companies offer lump sum settlements? In most cases, it’s to make things easier for them. For instance, if you have a chronic condition that isn’t going to improve, it saves the company the expense of having to make payments for months or years after a claim has been approved. It is also a way for them to be rid of a disability claim after a lawsuit.
Some Advantages of Getting a Lump Sum Settlement
What’s in it for you? Here are some advantages to accepting a lump sum settlement:
- A lump sum settlement can eliminate the risk of having your benefits denied or terminated.
- You can deposit the settlement and collect interest on the amount.
- A lump sum settlement is often tax free.
- You can invest the settlement funds anyway you want.
- Benefits can be left for surviving family members.
Potential Drawbacks to Accepting a Lump Sum Settlement
There are some drawbacks to consider about accepting a lump sum settlement. You may not receive as much money in benefits as you would if you accept a lump sum payment. If you don’t budget wisely or make poor investments, you could lose a significant portion of your settlement amount. Also, once you accept the settlement you won’t be eligible for any more disability benefits from the insurance company for your claim.
If your condition is terminal, the insurance company’s lump sum offer may be considerably less than the policy’s worth. For example, they won’t offer you the equivalent of a year’s worth of benefits if you are only expected to live for six months.
As you can see, there are both advantages and disadvantages to accepting a lump sum disability insurance settlement. If you’ve been offered a lump sum settlement, you’ll want to consider your decision carefully so you make the right choice.
LTD Insurance Benefits Attorney M. Stanley Whitehead Can Help You Make the Right Decision
A good idea would be to discuss your options with an experienced long term disability benefits attorney.
M. Stanley Whitehead, one of the nation’s foremost disability denial attorneys, is dedicated to protecting the interests of his clients. He can explain the advantages and disadvantages of accepting an insurance company’s offer for a lump sum settlement, so you can make the wisest decision possible in your circumstances. To find out more, contact the law offices of M. Stanley Whitehead.
