What are they smoking?


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
contract.
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
settlement.
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.
--ron
Reply to
Ron Rosenfeld
I cannot see why you should agree to this, unless, as you point out, you expect to live less than would be an average for people of your age who are no disability.
i
Reply to
Igor Chudov
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 cash.
Reply to
Don
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. --ron
Reply to
Ron Rosenfeld
Possibly that is their thinking. Although my greatest need is for the regular cash flow that this policy provides. And I would think that most would be in a similar position.
Perhaps not. --ron
Reply to
Ron Rosenfeld
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 it.
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 financially stable;
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 knows);
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 amount.
Good luck, Gene E. Utterback, EA, RFC, ABA
Reply to
Gene E. Utterback, EA, RFC, AB
Good point.
Yes.
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 to mine.
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.
Best wishes, --Ron --ron
Reply to
Ron Rosenfeld
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.
Reply to
Don
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.
-- Ron
Reply to
Ron Peterson
Based on conversations with friends and acquaintances, I think you're being overly optimistic about the desire of many to do that sort of work. Hopefully, I'm wrong. --ron
Reply to
Ron Rosenfeld
In article ,
Big SNIP>
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 ago.
Reply to
Avrum Lapin
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.
Chip
Reply to
Chip
Interesting web site. Thanks.
With their settlement offer, I can buy an annuity that provides me with 55% of what I am receiving now, not taking taxes into account. "Such a deal". --ron
Reply to
Ron Rosenfeld

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