THE RISK OF UNDER SETTLING YOUR CLAIM
By Alexander MacDougall, Attorney with Ray Bourhis Associates
The good news: you’ve been awarded Long Term Disability benefits by your insurance company and now they want to buy out your policy. The bad news: the figure the insurance company is offering you as a buyout is likely thousands of dollars, or more, short of what the Present Value of your Future Policy benefits actually are. Unfortunately, this is NOT an uncommon scenario in the realm of LTD. Nearly all insurance companies try to maximize profits by tweaking the percentages they payout in benefit buyouts. If an insurance company only pays out 60 or 80% in a buyout of what it would owe over the life of the policy, and if it can do this with regularity, it can increase its bottom line substantially.
The problem is, that when the average insured receives a letter about a policy buyout the first thing they notice is all those zeros; the sum can look like a lot of money; money that could be used for medical expenses or to pay for necessities.
That buyout proposal will also contain the basis for company’s calculations attempting to justify that figure. It will refer to things like discount rates, investment returns, mortality considerations, and other matters that can be complex concepts for even the most sophisticated layperson. Their numbers will look accurate and the explanations will seem reasonable; all things considered, it may seem like a pretty good offer.
BUT WAIT! Agreeing to their buyout figures is a guarantee that you are under settling your claim and leaving what could very well be a considerable amount of money on the table. You paid for this insurance plan and naturally, you should get everything you’re entitled to. So how do you do it? Unfortunately, it’s unlikely that you can. Negotiating with an insurance company is a difficult process that requires knowledge of economics, insurance accounting, policy interpretation and an understanding of the insurance system and how it operates. For example; with a lifetime benefits rider, life expectancy statistics already take into account unexpected and unanticipated events. It’s not correct for the insurer to argue that you could get hit by a truck next week. That possibility has already been factored in to the picture. The flip side is that you could live twenty years or more beyond your life expectancy.
Another example, if you have a Cost of Living Adjustment (COLA) that kicks in at the point you become disabled, it is incorrect to apply a discount rate to subsequent payments. The COLA largely cancels out inflation.
There are many other examples as well. But the bottom line is BE CAREFUL. Call us before you EVER agree to a buyout. We know how to get you every penny you’re entitled to.
And we will guarantee that this is not about pennies.