Lump Sum Settlements

Disability insurers sometimes will offer a lump sum to a claimant in lieu of continuing to receive a monthly benefit. Insurance companies do so for one reason – to increase their profits. The offers are never in the claimant’s favor because the insurance company is operating in its self-interest, not yours. 

Insurers make unfair offers by misrepresenting that they are offering the present value of the claimant’s future benefits. Present value is the time value of money. If you win a million dollar lottery, the lump sum you can get will be less than a million dollars. The theory is that you can invest the lump sum, which over time would equal a million dollars. 

The lump sum settlement that insurers offer use an interest rate that is too high to represent the present value of the future benefits. The higher the interest rate used, the smaller the lump sum. There is an easy way to prove this if you get a lump sum offer. Ask the insurer what interest they used to calculate the present value of your future benefits. Then tell the insurer that you will accept the lump sum if they purchase an annuity for you at that interest rate. The insurer will tell you that no such annuity is available in the market. 

I represent a claimant who was offered a lump sum in 2014 by CIGNA. Among other things, I advised the claimant that the interest rate used to calculate future benefits was too high. The claimant rejected the offer. 

CIGNA terminated the claimant’s benefits four years later. CIGNA was unable to identify any medical test, exam finding, or symptom that had changed. The case settled for much more than the 2014 offer, even though there was now four fewer years of future benefits. 

If you are currently receiving monthly disability benefits, and the insurance company offers you a lump sum settlement, make sure that you have the offer reviewed by your financial consultant or attorney. Chances are that the settlement is not worth it.