Lump Sum Payout of LTD Benefits

[Christine Roberts]

What are some of the main issues to be concerned about in determining whether to take a lump sum payout of LTD benefits?

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[Guest ScottN]

The settlement would probably be based on a present value calculation. Is the discount assumption fair?

Does the LTD plan pay benefits to age 65? If it is a non-contributory plan, will the recipient have enough money on an after-tax basis to safely generate an income stream sufficient to cover the monthly income they expected to receive from the coverage?

The insurance company probably believes the plan will have to pay benefits to the maximum benefit duration. One incentive they have is to lower claims administration costs.

Is the insured's physical condition such that a shorter life expectancy may exist and the settlement may provide more benefit than benefits received during the insured's lifetime?

[Guest mb]

I have always felt it is a method that is encouraged by insurers so that they can bring about a rapid conclusion to the claim By offering the enticement of large up-front settlements.

[KIP KRAUS]

Christine:

From the insurer's and employer's perspective,the lump-sum reduces calims experience, because they are betting that the lump-sum is going to be less than continued payments.

If the employee can afford to take the lump-sum it's a good deal. However, if he/she needs the continued income, taking the lump-sum may not be a good idea.

It all gets down to the employee and how he can survive if he takes the lump-sum.