The intent and purpose of long-term disability (benefits are to provide financial protection and income replacement to individuals who are unable to work for an extended period due to a disabling illness or injury. Unlike short-term disability or sick leave benefits, LTD benefits are designed to support individuals whose medical conditions prevent them from performing the essential duties of their occupation—or, in some cases, any occupation—for a prolonged duration. The overarching goal is to ensure that disabled individuals can maintain a basic standard of living and financial stability while focusing on recovery or long-term management of their condition by providing these individuals with a guaranteed monthly benefit to support them financially through a difficult time.
While long-term disability benefits are often, as the name implies, long-term, sometimes insurance companies will attempt to close an ongoing claim without denying a disability by offering an insured a buyout of their long-term disability policy.
What is a Long-Term Disability Buyout?
A long-term disability buyout is a one-time lump-sum payment from your insurer, calculated to represent the present value of your future monthly benefits. Acceptance of this payment will result in the termination of your policy, and you forfeit any future claims, even if your condition worsens or new complications arise. Insurers typically propose buyouts to minimize their long-term financial commitments, especially when they believe the claimant might recover or when the claim poses ongoing administrative challenges to adjudicate.
Key Considerations Before Accepting a Buyout
There are a number of considerations you should look at before accepting a buyout offer on your long-term disability policy, including:
- Financial Adequacy of the Offer – Assess whether the lump sum sufficiently covers your current and anticipated future expenses, including medical treatments, rehabilitation, and daily living costs, as this amount will replace all future monthly payments.
- Life Expectancy and Health Prognosis – If you have a long-life expectancy or a chronic condition, monthly benefits might provide more financial security over time. Conversely, if your condition is expected to improve, a buyout might benefit you more in the long run.
- Tax Implications – Depending on your policy and the nature of the buyout, there could be tax consequences. It’s essential to consult with a tax professional to understand potential liabilities.
- Impact on Other Benefits – Accepting a buyout might affect your eligibility for other benefits under your policy such as life insurance coverage or other coverage. It may also impact benefits your receive from other sources, such as Canada Pension Plan (CPP) disability benefits or Provincial Persons With Disability (PWD) benefits. Ensure you understand how other benefits may be impacted.
- Effect on your Employment – It is not uncommon to receive long-term disability benefits while remaining employed, sometimes for years after being unable to work. When your long-term disability comes from a group policy through your employment, there is the potential for your employment status to be impacted by accepting a buyout of your long-term disability policy.
The Role of a Disability Lawyer in Evaluating Buyout Offers
An insurance denial lawyer can provide a thorough policy review to make sure you understand the terms, conditions, and potential pitfalls associated with a buyout. They can also ensure that the buyout agreement doesn’t contain clauses that could inadvertently waive other rights or benefits and safeguard your interests throughout the process. Should there be a requirement to negotiate the offer for a buyout with your insurance company, an experienced lawyer can negotiate with the insurance company on your behalf to ensure you get a fair deal.
One of the most valuable benefits a lawyer can bring to evaluating your long-term disability buyout is to calculate the true value of your claim, considering factors like inflation, cost of living adjustments, COLA riders, and tax implications, ensuring the buyout offer is fair and adequate. It is important to understand that you will never receive an amount representative of 100% of your future benefits. The insurance company will look at a variety of factors, including the chances of your disability improving with time or medical intervention, the potential of your returning to work, whether future increases on deductible benefits like CPP disability would reduce your future entitlements, mortality risks, any issue they may take with the proof of your disability, and most importantly the present value of future payments.
Experienced Insurance Denial Lawyers
In British Columbia, the legal landscape surrounding LTD claims is complex. Insurance companies may employ tactics to minimize payouts, and without proper legal guidance, claimants might accept offers that don’t reflect the true value of their entitlements. While a long-term disability buyout offer might seem appealing, it’s imperative to evaluate it critically. Consulting with a knowledgeable disability lawyer in British Columbia can provide clarity, ensure the offer aligns with your long-term needs, and protect your rights. Before making any decisions, seek professional advice to navigate the complexities of LTD buyouts effectively.
If you have been offered a buyout of your long-term disability policy, the lawyers at Taylor & Blair LLP can assist. While many of our services relating to insurance denial claims are performed on a contingency fee basis with a free consultation, consultations with respect to offers to buy out long-term disability policies are done on an hourly fee basis. Fortunately, most insurers will offer to cover the cost of having a lawyer review buyout offers up to a stated amount of time.
If you have received a buyout offer from your long-term disability provider, contact the experienced insurance lawyers at Taylor & Blair LLP today to schedule your consultation.