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16. What should I do if my disability insurer offers me a lump sum settlement?

It would be wise to consult an attorney experienced in these matters.

A lump sum settlement is not a contractual benefit. From time to time, however, an insurer may offer a lump sum to pay you to give up your claim (but keep your policy), or to give up your claim and policy.

Here are some of the possible issues, by no means exclusive, that you should address when considering a lump sum:

  • The "upside" of a lump sum settlement is that you can collect a greater amount of money now as opposed to collecting a benefit monthly for a specified period of time. You can generally return to any form of work, assuming your health permits it and there is a satisfying job awaiting you, without the need to continue to complete monthly claim forms for the insurer.


  • The "downside" is that you may be forfeiting significant contractual rights to continue your current claim or a future claim. Once you surrender your policy, you no longer have a policy to protect you in the event you are disabled again. Similarly, once you have submitted a claim and collected disability benefits with Insurance Company AA and later take a lump sum settlement from Insurance Company AA, you may not be able to satisfy the underwriting requirements to get a new disability policy with Insurance Company BB, or you might be at risk for having a future claim of the same nature denied by a different insurer if it is deemed to be a pre-existing condition.


  • You should ask the insurer how they calculated the lump sum. Is it based on an expectation that you'll recover your health in short order? Do they expect to deny the claim in the near future? Ask them what is their calculation of the Present Day Value of future benefits? What interest rate did they use? Did they discount the Present Day Value? What type of discount did they use? What is the amount of the disability claim reserve they are holding on the claim? If you have been collecting disability benefits because of a cognitive or psychological impairment associated with a brain injury, ask the insurer if they'll agree to pay a fixed sum (perhaps $2000) towards your retention of counsel to review the proposal.

Accepting a lump sum settlement is a very significant decision and must be carefully evaluated in light of your current and expected future health, your future employability, your future insurability, and the fairness of the lump sum amount.