I have read your blog post on “LUMP-SUM BUYOUT OF A DISABILITY INSURANCE POLICY:3 THINGS YOU MUST KNOW BEFORE YOU ASK YOUR INSURER” and queries and your responses. It was very informative and has been very helpful. Thanks very much for taking time - to share your knowledge and responding to queries.
My LTD history so far:
I have been on employer sponsored LTD since early 2011. Have been receiving CPP-D since 2012 and LTD monthly payment has been offset to account for CPP-D monthly payment. MVA subrogation with LTD insurer was completed 2 years back. My LTD is coded “Permanent” per insurer’s records gathered during MVA Subrogation.
Employer pays monthly extended health premium and contributes both employer and employee monthly payments to registered pension plan.
I am 45 now and my LTD plan is till 65. I have not received any buyout proposal from the insurer and I am thinking of asking for a voluntary LTD buyout. In this regard, I wish to ask for your feedback and inputs on the following queries:-
As my LTD plan is through by my employer, Does my employment with my employer automatically end, with the settlement of LTD buyout with the LTD insurer?
If my employment ends with my employer with the LTD buyout, I will lose a) Extended heath coverage b) Contribution to Registered Pension Plan c) Life Insurance coverage.
Does the LTD insurance providers ever consider these components in arriving at the LTD lump sum quantum negotiations? (or) Being my buyout request is voluntary, Should I be prepared to forgo these significant components?
3, My LTD has 2 components a) Taxable Non-Indexed monthly payment and b) Non Taxable Indexed for Inflation (Indexed to Cost of Living Allowance (COLA) up to a maximum of 4% per year) monthly payment.
In arriving at the Present Value (PV) calculation for my LTD monthly component that is Indexed to COLA, Can I ignore the “Discount Rate” (4% in your example)?
Is this a valid assumption (or) Would the insurance company still apply “Discount rate” to arrive at PV of this LTD component as COLA rate is typically much lesser than the “Discount rate”?
Thanks very much for your time and all your help. Looking forward to your inputs.