If Your LTD Carrier Offers a Settlement, What Should You Do?

Recently, someone contacted me to ask this question:

"I have been on disability for just over 10 years, because of fibromyalgia and migraines.  My disability insurance company just completed a review, and said that I'm still disabled, but then they offered to settle my claim!  They are offering 66% of the current value and are using an interest rate of 4.37%. I also have Social Security Disability.  I wanted to make sure this would not effect my social security disability payments.  Also I wanted to make sure that I will not have to pay taxes on this lump sum.  According to UNUM, since my monthly payments are not taxable neither is this, but their letter denies any tax claims.  Is this a good deal? I am afraid they will deny my claim if I don't take this."

It's tough to know what to do in a situation like this.  I have helped people through several of these negotiations, though, so I can offer some advice.  First of all, what they claim is 66% of the value of your case may actually be more like 50% - they throw a lot of extra factors in there, like "mortality and morbidity," that in my opinion don't matter when calculating the "full value" of a case.  If you're OK with the amount they're offering, though, that's what matters.  Usually, if you negotiate with them, they will go up a little, but not a lot.

As far as the taxability goes, nobody but a tax professional ever wants to give tax advice, but I can tell you generally that settlement does not change the taxability of anything. So if something was properly untaxable as a monthly benefit, it's still untaxable as a lump-sum settlement.  Unfortunately, whether your monthly payments are truly, properly untaxable - that really is a question for a tax pro.

But you can rest assured, this will not affect your Social Security disability benefits.  If you've been receiving both Social Security disability and LTD for 10 years, I'm pretty certain you're on SSDI, not on SSI.  SSI is need-based, and settling a claim for a lump of cash could mess up those SSI benefits.  SSDI benefits are not need-based, so you could settle this LTD claim, inherit money from someone, or even win the lottery with no worries.

Would Unum deny your case if you turn down the settlement?  Probably not immediately, and maybe never, but you can never be sure.  In my experience, Unum and the other LTD insurers don't typically offer to settle unless there's a good reason to think the person might stay disabled (and draw benefits) for a long time.  If there was a good reason to deny you now, you'd better believe they'd be denying you, not offering to settle.  So on one hand, that might mean you should reject the deal and stay on claim, receiving more money in the long run.  On the other hand, you never know what they're going to do, and if you settle, there's no more worrying about what they might do.

Please keep in mind that you don't have to do this alone - you can hire an attorney to help you through this.  I've even had Unum and some other companies offer to pay part of the attorney's fees if you tell them you want an attorney's help with this.  The attorney can then help you deal with Unum, make sure you get as much money as possible, give you specific, individualized, private answers to any questions you may have, and make sure the terms of the deal are right for you.

-Jeremy Bordelon