I’m in my thirties and work in a very lucrative industry that pays extremely well (>$400K/yr). I’m in the process of going on LTD and am finding lawyers in case I get denied but all lawyers I’ve spoken to all say I have a strong case. (I won’t bore people on here). I am also in a position to potentially retire soon.
My question is this.
2 years = own occupation, 2+ years = any occupation. Based on what I read on this forum, the 2+ years = any occupation also should meet some sort of income threshold.
I get how lump sums work (say in family law), but how do they work for LTD?
Presuming $200K/yr salary for LTD non taxed (50% of base salary) is say $100K/yr * 2 years of LTD = $200K for “own job payments”. That’s the easy part.
Assuming I’m 35, and I have 30 years to go until I turn 65, how do they even do the math here? Would they say it’s $100K/year (like the above) * 30 years = $3M?
Then they take that ($200K + $3M) * (the probability of winning including present value of future cash flow, also taking into account it’s a lump sum and I could die 3 years from now etc)? Eg 3.2M * 50% = $1.x million, etc?
The thing I’m most curious is the “30 years to go part”. How do they even approximate that number? Is it based on my present base salary?
The insurance company can only cut you off with the 2+ year any occupation clause only if you are able to take a job that pays about 60% of your previous income. That is what the common law has in place if your policy is silent on income thresholds. Some policies I’ve seen state the “any occupation” needs to be 65 to 75% of your previous income.
I’m a bit confused on why your insurance company would pay you a lump sum? They only pay LTD benefits on a monthly as long as you continue to prove monthly (sometimes weekly depending on how aggressive the claims manager is) then annually (after 2 years) that you are completely disabled to do your own occupation or any occupation normally after 2 years. The only times I’ve ever heard of an insurer offering a lump sum is when you’re a few years from the the max benefit age (usually 65) and the offer is usually pennies on the dollar, and no one I’ve ever spoken to has ever accepted it.
If as in your title you only mean lump sum after denial then litigation/negotiation, what I’ve heard is you’re EXTREMLY lucky to get 10 years worth of LTD and your legal team will take a large chunk of that. There has been a recent Blue Cross case that went to a jury after several years that resulted in landmark HIGE large payout of over $2.5 million which I think about $1 million went to the lawyers. I’m sure it’ll be tied up in appeals for a while.
Perfect, thank you. And yes, I was referring to a lump sum payout if I have to litigate and the lump sum would be part of whatever is agreed to upon settlement.
Going back to my original question then, say it’s 10 years, etc, any idea what that % number would be?
E.g. 10 years * $100K/year * X%. What would that % be?
And yes the contingency fees are usually 30% so I’m not taking that into account here.
I’m trying to figure out what a potential settled claim amount might be before i think about litigation
I think the x% your looking for is already built into the year amount. The 10 years on what could be a 35 payout accounts for NPV, early death, CPP disability offset, potential early recover, etc.
Personally if I ever get cutoff I’m going for the NPV of a couple decades worth of LTD plus all legal fees. I think my insurer knows this which is why they have rarely contacted me since I started LTD.
Thanks! I have nothing to lose and am well financially funded so this should be interesting. Really appreciate your insight here. I have a consult with Resolute Legal shortly as I was impressed that they facilitated this forum.
Yeah I don’t think you’d be getting a payout of a lifetime lump sum at your age. You’re going to get a settlement of past payments you should have gotten because they don’t owe you future payments until you have continued to be disabled, alive, and in compliance with your LTD policy. Instead of gaming out settlement numbers, spend your time figuring out how to demonstrate that you qualify as disabled under your LTD policy. Also, beware the ‘retire’ word, as that may also end your LTD.
Caro is bang on. If it were to go to court a judge would only ever rule to put you back on benefits and past payment that were missed, some legal fees, and maybe some damages.
The huge Blue Cross settlement I was referring to before was for damages and legals fees (not a lump sum for LTD payments). The jury then subsequent judge ordered that because of how absolutely apprehensible Blue Cross behaved. I believe that case has put insurance companies on high alert to play nice, and avoid court with reasonable settlements when it makes financial sense for them to do so. I think it’s always in the insurance companies best interest to just pay a monthly payment when a claimant has ongoing proper documentation and medical support.
Anonymous1, I suggest focusing on making sure your paper work and doctor support is solid, along with doing everything you can to try get healthy again.
Thanks all for the feedback. A few points of order:
I’m not worried about the reasons behind the disability as I have exhausted all medical avenues for recovery. In addition, the condition is lifelong with a poor prognosis of recovery.
The chances of my case going to litigation are near 0, as for any LTD case for that matter.
Gaming out settlement numbers is purely to enhance my understanding of how this case may go. The insurer may want me off of the policy & to release all claims which is standard for settlements and as such lump sum payments may be the way to go.
Proving (on a balance of probabilities) that one is totally disabled before a judge also has a probability of near 0, which I am aware of. I believe after speaking with a few lawyers that it is ‘normal’ for insurers to lump sum the 2+ year payout amount. Is this not the case as they just want folks off their books?
^Question for #4. If this isn’t the case please do let me know. I would think it is?
In the disabilty support group I am in there are dozens of very severely disabled individuals that will definitely never work again in the next 10 to 30 years , and none one of them were offered a lump sum payment at a younger age. The few that did get a lump sum offer was when they reached their early 60s, but thr payout wasn’t worth taking.
Are you talking to LTD specialist lawyers or regular lawyers (car accident liability for example). If it is the later my experience is they they say alot of stuff that isn’t reflected by reality.
In my mum’s lifetime type 1 diabetes went from childhood death to a close to normal life expectancy. In my lifetime the prognosis for cystic fibrosis went from age 18 to age 42 to as of last year a normal life for the 95% of the patient pool who can tolerate the new therapy, hep C is now completely curable, and the short to mid term death sentence of HIV is now a chronic disease. I expect to see many body parts become replaceable and severed spinal cords reconnected electronically before I die.
It’s not going to be in the insurer’s interest to pay you out because the contingencies are huge. They would also lose the future returns on the reserves set aside for your claim. I can’t see a scenario where they’d do it. A court isn’t going to order a judgment of future NPV because you aren’t entitled to the stream of payments. Asking for a lump sum is just going to make them suspicious and start looking for reasons to cut off your monthly payments. Adjusting for the contingencies and your age I’m guessing they’d be valuing it at about 15% of the NPV of the payment stream less CPPD before applying contingencies. Deduct a third of it + disbursements for your lawyers and it’s looking pretty paltry. The best case scenario that’s realistic is returning you to monthly payments.
The odds of me proving total disability before a judge is close to 100%, if your disability is nebulous enough that you don’t think you can prove it on a balance of probabilities then that’s yet another massive discount for your insurer to apply against your settlement amount.
David Brannen has a webinar exactly on the topic of lump sum payments. It’s available to Resolute Legal Insiders so I would highly recommend you find it and watch it and it answers all the questions you’re asking here.
Bottom line from the webinar is no, it’s not routine for the insurers to award lump sums. If they do, it’s because they want to improve their financial statements for the time period. So if they offer lump sum payments it’s a massive low ball. For LTD, you as the person receiving payments will maximize what you get if you just receive monthly payments for the span of your disability.
Insurance companies typically view people wanting a lump sum suspiciously. They’ll take it to mean you’re indirectly signalling you’re capable of working.
I too would recommend like Buckets365 and Caro you focus on getting approved first. The fact that your insurance policy has an own occupation to any occupation transition sets you up for more risk. People in the income range you describe who purchase their own disability insurance policies usually purchase ones that remain own occupation the whole way through.
Even if you think your case is clear from a medical perspective, a medical diagnosis is not the same as functional impairment. So the insurance company has IMEs, surveillance, their own consultants who recommend a return to work trial, etc. Unfortunately, I suspect it’s far more likely you’ll experience any of the above before you get a lump sum offer.
Yes I am speaking to LTD lawyers and look forward to discussing with Resolute soon!
Re Caro’s comment: “The odds of me proving total disability before a judge is close to 100%, if your disability is nebulous enough that you don’t think you can prove it on a balance of probabilities then that’s yet another massive discount for your insurer to apply against your settlement amount.”
The reason I think mine is close to 0 is because I’m assuming a judge would only rule someone’s condition as ‘totally disabled’ is someone on a hospital bed who is totally unable to even get up. I believe that is an extreme interpretation but that’s my initial take on it.
That’s incorrect. Total disability is what your insurance contract defines it as. Mine says I’m totally disabled if I can’t earn more than a specified percentage of my previous earnings.