I have LTD, paid for by me so not taxable, payable for life.
I just received a "settlement" offer and I wonder why they bothered.
They disclose the source of the interest rate they use to determine Present
Value -- it's now at 4.29%, along with some other information about
mortality and adjustments for health status.
Then they offer an amount that is about 67% of the present value of the
In case I'm inclined to accept it because I know I'm going to die real
soon, they require a physical be done before the company will do the
I can understand the benefit of this sort of settlement to the company. Is
there any reason why it might be advantageous to me to accept this deal? I
cannot think of any, and wonder why they would waste time in this manner.
The company probably hopes you have an urgent need for quick cash.
Arguably that puts it in the same category as pawn shops, places that
offer payday loans, and the outfits that buy your income tax refund for
And even if I did, that fact would probably come out in the physical I'm
required to undergo prior to the company actually agreeing to this. And
they would likely withdraw the offer!
I suppose I might also accept it if I thought the company was going to die
(go bankrupt) in the near future. But no sign of that, either.
OP has an LTD policy. The issuer has made an offer to cash out the policy
for a lump sum payment of 67% of the PV of the contract. OP wonders WHY
they would make such an offer and if there is any advantage to his accepting
We'd need a TON more info, like:
1 - are you collecting a current benefit NOW?
2 - if so, how long do you think you will continue to collect?
Their requirement that you have a physical makes me think you may not be
collecting now, though it is impossible to know that without more info.
The company may be getting out of the LTD market, in which case you could
find yourself in bed with a different provider or you could find yourself
with no coverage at all. You'll need to check your contract to see what it
says about your type of coverage. Some policies allow for a return of
premium if you don't use it, some cap your benefit at a dollar amount even
when you do use it.
Several possible advantages to you cashing out include:
1 - you'd get a lump sum of money now that you might be able to use to
satisfy other obligations thereby making your overall situation more
2 - you can invest the lump sum however you wish, which could potentially
increase your long term return and cash flow on the money. If you can get a
better return than they guarantee you could be better off (MAYBE, who
3 - If you are already disabled and you qualify for Social Security
Disability your contract may allow them to reduce their payments to you by
any amount you collect from SSA. If you cash out now AND get qualified for
Social Security you'd already have their money AND you'd get the SSA money.
The real problem is that NO ONE KNOWS what might happen or what could
happen. The best recommendation I can make to you is to sit with a
professional who can assess your situation and the offer and give you some
focused guidance. The next problem for you is choosing who to sit with - if
you're already disabled you'll need to know from your doctor what your
chances are of getting SSA Disability, then you'll need to speak to an
attorney to see how much it will cost you to fight for SSA (NO ONE gets it
the first time they ask, virtually all are denied and have to appeal through
the legal process - and then only a small percentage qualify). Once you
have this info you'll need someone to review your LTD contract and see what
it allows and what it requires.
I have several clients right now who are collecting on LTD and every one of
the is being required by the carrier to apply for SSA Disability. In one
case the carrier is actually paying for the attorney to represent the
client - it is far cheaper for them to pay the different than the whole
Gene E. Utterback, EA, RFC, ABA
The rest of my life.
Although they did so initially, they have not required me to have a yearly
physical for a number of years. I thought they wanted the physical so that,
if it appeared that my life span was more limited than the tables predict,
they would modify the offer downward.
At this point, the terms are that the policy will pay until I die. I'm 67
now and in good health. I think it unlikely that they will be getting out
of the business, as disability constitutes that bulk of their business.
The cash flow is an integral part of my ongoing requirements. I do have
mortgages on two houses. One will be paid off this year; the other in
2018. And the mortgage payment is about 15% of the monthly benefit. I
don't think paying it off would change my financial status significantly.
For financial planning purposes, I have considered that I will live to be
100. Using the company's PV calculation, and their stated discount rate, I
think they are assuming a life span of 80 years. There's no way I could
earn even close to my monthly benefit on their offer. If my calculations
are correct, I would need to earn something like 14% annually tax-free.
I do not qualify for SS disability, and cannot imagine that I ever would.
My LTD is an "own occ" policy.
I contacted the person who sold me the policy, and with whom I have had
ongoing contact (and business) over the years. His reaction was similar
I posted here in case there was something he or I might have overlooked.
I thank you for your thoughtful comments. It gives me some insight as to
circumstances in which this sort of offer might be useful.
I keep thinking that one good outcome of the endless congressional
debate over health care is that more people have begun to take a hard
look and analyze in more detail the activities and business of
insurance companies. I would hope that that analysis spills over into
other contracts, annuities, LTD plans and such in addition to matters
of health care.
Go to immediateannuities.com and calculate what your annuity would be
with the cash settlement. If the immediate annuity is less than what
your get now, don't take the offer.
I assume that your disability isn't going to affect your lifespan
since you say that you are healthy.
In article ,
It has been my observation that it generally takes 12 to 24 months to
get SSA Disability approved and with few small exceptions you need an
attorney to help you
When finally approved you will be awarded a lump sum going back to when
you became disabled. The lump will be paid out over time. A defined (by
SSA) percentage of the lump sum will be paid directly to the attorney as
will certain sums for the medical documentation and reimbursement for
welfare received (if any) while the claim was being approved. . The
"disability" lawyers work on a contingency basis which may be why it
takes so long for SSA to approve the claim. The lawyer would have the
best idea on whether you have a good claim.
There are certain illnesses which get fast tracked at SSA. I saw a list
once on the internet but don't want to look for it again. (put the word
"compassion" in your search.
Slightly off topic
In my view many people who buy LTC insurance shouldn't - they either
have too little assets and will soon be on Medicaid or they are wealthy
enough to be self insured. I think I posted a study here several years
Given my personal experiences of the hassles of getting payment from the
LTC insurer since the home wants the cash up front and has no
incentive to get the paperwork done and the LTC insurer sure doesn't
care, I agree with you 100%. Invest in a deferred annuity and start
taking payments when you need them.