The Art of a Lump Sum Buyout of a Disability Claim

Many claimants have heard or read about the scenario: your disability insurer calls you on the phone, sends out a field agent, or sends a letter proposing a lump sum payment to “buy out” either the future of your disability claim, a disputed portion of unpaid past benefits, or both. In many instances a buy out can be a desirable outcome, but the claimant needs to understand the ramifications, have confidence that the proposed deal makes sense, and that it is the best deal available. Using experienced legal counsel can be an invaluable tool in assessing whether crafting a buyout deal is the right thing to do and in cutting the best deal possible.

One of the first considerations for a claimant already receiving benefits is to determine the likelihood of the claim being terminated if the buyout proposal is rejected. Some insurers use the fear of a claim termination as a tactic to convince the claimant to accept a lower than fair amount. If the claim may truly be on the verge of a termination, however, there needs to be an assessment of the potential costs of a lawsuit and the likelihood of winning or losing the lawsuit. Those factors are essential in arriving at a sensible buyout figure. There are tried and true methodologies we use at this stage, in order to provide our clients with the best chance of avoiding a lawsuit and securing their financial future. For more information, visit our website at:

Another important piece of the puzzle is to have a realistic assessment of morbidity and mortality in order to make appropriate adjustments to the total future expected disability payments. Many claimants have missed the opportunity to receive a favorable lump sum by failing to have such an assessment. In addition, the claimant needs a thorough understanding of the “present value” concept in order to calculate the true value of the investment power of a current lump sum of future benefits.

It is also critical to know thine enemy: is the insurer testing the claimant’s mettle or really looking to buy out the claim? Different insurers use different techniques and thus having knowledge of the prior tactics of the insurer is invaluable.

When it comes to a buyout during litigation, the cost and risk factors for further litigation and the potential outcomes are much more prominent factors than in the claim context. Knowing how the litigation will play out under ERISA, for example, is critical, especially since there are land mines at every turn that can cause a claimant’s case to be dismissed entirely.

In summary, buyout strategies are complex and critical, and disability attorneys with years of experience can navigate the claimant to a successful outcome.

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