Many individuals filing claims for long-term disability insurance (LTD) benefits receive a few rounds of claim denials, followed by the offer of a lump-sum settlement to resolve the case. Unsurprisingly, the policyholders who receive these offers are often curious about the amounts they have been offered align with the average payouts long-term disability cases receive. LTD settlement value estimates can be tricky, in part because the typical long-term disability case payouts are calculated as a percentage of the claimant’s pre-disability income. Since percentages vary by policy and income is highly specific to the individual, basing lump-sum case settlement evaluations on average LTD payout amounts may not reflect the realities of a given situation. Particularly if your income or your scope of coverage lies significantly above or below the median for your industry, you may find it helpful to review the factors insurance companies commonly consider in determining their buyout offers. Seeking help from professionals who can help you assess how those factors apply to your own situation may also be a valuable step.
What Are Typically Long-Term Disability Benefits?
Long-term disability benefit payments can be crucial to weathering the financial strain that often comes with developing a disability in the middle of one’s career. That said, understanding the specific benefits available under the terms of a particular policy, and the effects of various policy riders and exclusions as they apply to how the eligibility of an individual’s claim will be reviewed by the insurance adjusters and what the eventual benefit payments may be can pose challenges.
What Is a Long-Term Disability Buyout?
Insurance companies will sometimes use lump-sum settlements or buyout offers to resolve disputed claims, rather than continue with administrative appeals or potential litigation. For the insurance provider, a buyout means closing a disability claim and ending the ongoing expense of administrative overhead associated with claim review and management. For the insured person, LTD settlement value estimates can often mean guaranteed money in the present, rather than potential money projected for the future.
Typical long-term disability case payouts are lower than the total amount the insurance company would expect to pay for a fully approved claim over the maximum benefit period permitted under the terms of the policy. Recognizing this, many individuals pursuing LTD claims are both wary of initial settlement offers in their own cases and curious about the average payouts long-term disability cases provide.
How Is a Long-Term Disability Buyout Calculated?
Often individuals appealing denials of their LTD benefit claims become curious about average LTD payout amounts, particularly when they are offered lump-sum settlements to resolve the case. However, the average payouts long-term disability claims receive may not represent truly realistic LTD settlement value estimates for a particular case. The average payouts long-term disability policies provide can be somewhat misleading if you do not take into account such factors as the amount the claimant was earning prior to become disabled and the specifics of the policy, such as the maximum duration of benefits and the percentage of pre-disability income the policy is guaranteed to replace.
Average LTD Payout Amounts: What Long-Term Disability Claimants Need To Know
LTD settlement value estimates can vary widely. Understanding some of the factors that go into calculating typical long-term disability case payouts may help you to form a clearer idea of what you can expect from a settlement offer in your own case, as well as how to evaluate the reasonableness of an offer on the table.
Maximum Benefit Period
The maximum benefit period of the policy for the disabling condition can play an important role, particularly for policies that offer relatively extended benefit periods. Many LTD plans provide benefits for only a set number of years, while others pay benefits potentially up to the individual’s expected retirement age. Provisions limiting the benefit period for specific conditions are common and can impact the average payouts long-term disability insurance providers offer for claims involving those conditions.
Percentage of Pre-Disability Income
Before engaging in any negotiations with the insurance company, be sure to calculate for yourself the maximum amount the insurance company would owe you for an approved claim, based on the percentage of your pre-disability income guaranteed under the terms of the policy. Employer-sponsored long-term disability plans often provide coverage for 50-80% of the employee’s pre-disability income. Individual policies tend to veer toward the higher end of the income replacement scale, with some policies guaranteeing a post-disability income of up to 90% of the individual’s former earnings.
Additional Sources of Income
In the strictest sense, LTD policies do not pledge to pay a certain percentage of an insured person’s former wages in case of a disability. Rather, these policies guarantee a post-disability income up to an amount calculated as a percentage of those former wages, set in the terms of the policy. Benefit payments are calculated to make up the difference between the total amount that would equal the designated percentage of pre-disability income and the total amount the individual is receiving from all other sources, such as Social Security Disability Insurance (SSDI) or workers’ compensation benefits.
These offset structures can be complex, but a hypothetical illustration may serve to clarify the basic principles on which they work. If someone was earning $200,000 per year prior to becoming disabled, and his or her LTD policy promised coverage up to 50% of pre-disability income, then assuming the individual had no other income sources post-disability, the insurance company would owe $100,000 annually in benefit payments. On the other hand, an individual with the same pre-disability income on the same long-term disability policy who receives $50,000 annually in workers’ compensation disability benefits will only be entitled to $50,000 in benefits from long-term disability insurance. The LTD does not pay benefits equal to 50% of the individual’s pre-disability income, but rather makes sure that the individual’s total income after becoming disabled comes to 50% of what he or she was making prior to disability.
What Is the Maximum Payment for Long-Term Disability?
Most long-term disability policies cover somewhere in the 50-80% range with respect to the policyholder’s pre-disability income. Some more robust policies may pay as much as 90% of pre-disability earnings. These high-percentage long-term disability plans tend to be more common in individual long-term disability insurance than with group LTD plans, but always check the terms of your own policy to be sure. Benefit periods and excluded conditions or conditions that qualify for limited benefits can be similarly variable, but unsurprisingly trend toward shorter periods and more restrictive exclusion terms in group plans vs. longer LTD benefit duration and broader scope of coverage under individual policies.
One point to keep in mind is that many individuals on employer-sponsored disability insurance purchase policy riders or supplemental coverage to increase the average LTD payout amounts that would be realistic under the terms of their standard policies. Careful review of your plan documents to be sure you understand all of the benefits to which you are entitled is crucial to developing LTD settlement value estimates that apply to your unique situation.
LTD Settlement Value Estimates: Future Implications of Present Calculations
Typical long-term disability case payouts are intended to save the insurance company money by paying out less for an individual’s claim than the maximum they might spend on benefits over the life of the claim, often calculated in combination with the legal and administrative expenses the company may potentially incur in continued denials. At the same time, individuals pursuing LTD benefit claims are often interested in average LTD payout amounts because they want to develop LTD settlement value estimates that can help them determine whether a lump-sum buyout offer is fair in their own case. The average payouts long-term disability claims see can be affected by a number of factors, each of which can have variable impact depending on the situation. Given the complexity of disability claim buyouts, you may want to seek assistance from professionals in fields such as medicine, law, and financial planning – to evaluate your own likely long-term prognosis, to review and interpret the terms of your specific insurance policy, and to make a realistic comparison between what the insurance company is offering, what the policy entitles you to at its fullest extent, and how likely you are to return to work before the maximum benefit period for your condition expires.
