Navigating your long-term disability claim can be complex. Our long-term disability payout calculation guide provides you with an immediate, precise estimate of your benefits. Gather essential details like salary and employment end date to calculate your insurance payout, and utilize this guide to understand the factors affecting your results. Prepare to plan your financial future with confidence, step by calculated step.
Key Takeaways
Most long term disability insurance policies will pay until you reach Social Security Normal Retirement Age as long as you continue to meet the definition of disability. Each policy is different, so read yours carefully.
Monthly LTD benefit amounts are usually about 60% of your pre-disability earnings, but your future payments will usually include cost of living adjustments (COLA). You won’t start receiving benefits until your elimination period expires (that’s the wait time before you start getting paid). The elimination period is one of the things to consider before filing a disability claim.
A lump sum settlement, or buyout of your claim, usually only occurs when you are in litigation with the insurance company (which we hope will not happen). It can also occur when the insurance company believes that it will be paying you to the end of the contract period. This means getting your disability money in one big payment, but it’s tricky. You need to figure out its present value, understand the tax hits, and know whether it’s better than getting monthly benefits. Our experienced long-term disability team can help you evaluate a lump sum offer from an insurance company.
Discover the Value of Your Long-Term Disability Benefits
There are many factors that influence the value of your long-term disability benefits. We’ll breakdown the general elements that calculate this value, such as date of birth, current date, and monthly benefit amount, among others. Your date of birth helps determine when you reach age 65, which is often the end date for benefit payments, thus giving us the total number of monthly benefits.
Moreover, the Last Date Worked is a crucial input as it helps to determine when your monthly disability benefits should have commenced. Accounting for the six-month elimination period, this will help you determine both past due and future benefit totals.
Understanding the Calculation: How Your Monthly Benefits Add Up
Monthly benefit amounts for long-term disability are generally determined as a percentage of your pre-disability gross monthly wage. This percentage is often established at 60% by the terms of the insurance policy. So, what does this mean? It simply means that if you earned $5000 per month before your disability, your monthly LTD benefits would be approximately $3000.
But that’s not all! There are other factors to consider, such as the Cost of Living Adjustments (COLA) and the Elimination Period, which we will delve into in the following subsections. So, let’s get started and break down the benefit amount!
Breaking Down the Benefit Amount
Your pre-disability gross annual wage is the starting point for calculating LTD benefits. If you earned $60,000 per year before disability, the gross annual long-term disability benefit would be 60% of $60,000, i.e., $36,000.
But remember, LTD benefits are paid monthly. So, to arrive at the monthly benefit amount, we divide the annual LTD benefit by twelve. In this case, it would be $36,000 divided by 12, which gives us $3,000 per month. It’s simple math, isn’t it?
Next, let’s move on to COLA adjustments.
The Role of COLA Adjustments
Ever heard of the term COLA? It stands for Cost of Living Adjustment. A COLA rider on a long-term disability insurance policy increases the monthly benefit annually based on the consumer price index if the disability persists for over a year. But why is it important?
The purpose of the COLA is to ensure that disability payments keep pace with inflation. However, it’s worth noting that it is one of the more costly riders to add to a disability insurance policy. The COLA is more beneficial for younger policyholders who have more working years ahead and may collect benefits for a longer period, allowing for compounded COLA increases.
If your policy includes a cost-of-living adjustment (COLA) provision, your benefits may increase by 1% to 3% each year, potentially enhancing the overall payout. Interesting, right? Let’s move on to the next factor – The Elimination Period.
Incorporating the Elimination Period
The elimination period in long-term disability insurance, also known as long term disability coverage, is the time you must wait before your insurer will start paying benefits. This period typically ranges from 30 days to six months It starts on the date your disability prevents you from working, not the date you file a claim, and this affects when your policy begins paying out after a claim is filed. While this article focuses on long-term disability, it’s important to note that short-term disability benefits have their own set of rules and elimination periods.
During the elimination period, you will not receive long-term disability benefits; payments only commence after this period provided you continue to demonstrate an inability to perform your job duties. If you experience a recurrent disability due to the same condition, you may not need to undergo a new elimination period, but a new illness would typically require satisfying a new elimination period.
Now that we have a good grasp of how monthly benefits add up, let’s talk about lump sum settlements.
Present Value Analysis: What Does It Mean for Your Lump Sum Settlement?
Present value is a financial concept that involves determining the value of future payments in today’s dollars. When it comes to a lump sum settlement, the present value of future payments is determined by discounting the total of future monthly payments to their present value. This provides a realistic estimate of the value of future LTD payments in terms of a settlement or buyout.
Present value calculations are based on the time-value of money concept, taking into account that money available today can earn interest over time, and inflation could decrease the future value of the money. The interest rate used in present value calculations can significantly affect the discounted value. Here are some key points to remember:
Present value calculations consider the concept of time-value of money.
Money available today can earn interest over time.
Inflation can decrease the future value of money.
The interest rate used in present value calculations can significantly affect the discounted value.
Higher interest rates lead to a lower present value.
The lump sum settlement process typically involves the following steps:
Determine the grand total present value of the settlement.
Agree upon a percentage reduction to arrive at the lump sum settlement amount.
Consider the tax implications of the lump sum payment, as it may have unique tax consequences.
When to Consider a Lump Sum Settlement Over Continued Benefits
Choosing a lump sum settlement can provide immediate financial security for dependents or beneficiaries, especially if your health condition indicates a pressing need. It also eliminates the ongoing management and compliance with the insurer’s criteria for monthly benefits. Individuals with the ability to invest wisely may prefer a lump sum payment to maximize potential returns through financial markets.
On the flip side, the likelihood of a claim significantly shortening your life expectancy may reduce the insurer’s willingness to offer a settlement or lower the offered amount. Also, accepting a lump sum buyout has final and irreversible consequences, making it challenging to judge the fairness of the offered amount.
Choosing between a lump sum settlement and continued benefits requires careful consideration of various factors and consultation with experienced legal or financial advisors.
Navigating the Claims Process: From Application to Payout
To file a long-term disability claim, you must follow these steps:
Obtain an application either from your employer or directly from the insurance company.
Submit supplemental evidence such as test results and doctors’ records.
Notify insurers of the claim promptly.
Provide detailed explanations as well as comprehensive medical evidence to reinforce your long term disability claims.
However, beware of common reasons for claim denials, such as untimely notification and documentation, and lack of comprehensive information. Always follow strict ERISA deadlines for filing claims and appeals to prevent denials. (The BenGlassLaw Resource Guide for Winning Your Long Term Disability benefits is here.)
Calculating past and future benefits involves determining the number of months based on the Last Date of LTD Pay and multiplying the monthly payment amount by the number of months owed. The application process can be challenging due to extensive paperwork, medical records, and forms that need to be meticulously filled out and submitted.
Legal Insights: The Importance of a Long-Term Disability Lawyer
Hiring an experienced long-term disability attorney increases the likelihood of successfully overturning a wrongful denial and securing the benefits you’re entitled to. The presence of legal representation may influence an insurance company to reconsider a claim denial due to the threat of legal action.
An experienced long-term disability lawyer, well-versed in disability law, such as our team here at BenGlassLaw, can avoid critical missteps in the claims process that could jeopardize LTD benefits. We can present evidence in court to contest wrongful claim denials. When searching for a disability lawyer, important traits to consider include:
- Extensive experience Our team files more LTD lawsuits than any other firm in the Northeast Region of the US (although we work with clients nationwide).
- National reach BenGlassLaw speaks at national conferences and teaches other attorneys how to handle these cases.
- A successful track record in similar cases Read our reviews and case results from our long-term disability clients.
Assessing Insurance Company Tactics
Billion dollar insurance companies calculate settlement values based on factors like:
the claimant’s life expectancy
medical evidence
work history
They often look for ways to minimize payouts. Denied disability insurance claims may constitute bad faith insurance practices, indicating the insurer’s failure to deal fairly with the policyholder.
Insurers perform activities checks and surveillance, and any observed behavior contradicting the claimed disability could lead to claims being denied. Social media profiles and posts of claimants are monitored by insurers for signs of activities that seem incompatible with reported disabilities. They may require an Independent Medical Examination (IME) by a doctor of their choosing, which can result in biased reports that understate the severity of the claimant’s condition.
Preparing for Potential Roadblocks in Your LTD Claim
There are potential roadblocks in the disability insurance claim process that you need to be aware of. Insurers define disability in their own terms, which can lead to claims being denied if the condition does not meet the policy’s specific guidelines. To ensure you have the right protection, it’s essential to understand your disability insurance coverage. Claimants must continuously prove they are disabled as per the policy’s terms and provide sufficient medical documentation to support their claim.
Certain medical conditions such as pre-existing conditions or those resulting from self-inflicted injuries may be excluded from the LTD policy coverage. Independent medical examinations (IMEs) required by insurers can result in disputes when the IME concludes the condition is not disabling. Consistency in the claim is vital, as inconsistencies can be discovered through insurer-conducted surveillance, leading to disputes and denials. BenGlassLaw offers a comprehensive disability pre-claim consult for high wage earners and business owners.
Beyond the Calculation: Additional Factors Influencing Your Payout
There are additional factors that may influence your LTD payout such as benefit offsets and tax implications. Being aware of offsets for other income such as Social Security disability or workers’ compensation is essential since these can lower the LTD payment amount. Disability benefits from other sources, including Social Security or workers’ compensation, may reduce the amount paid out by a policy’s disability benefits, which varies based on policy terms.
If a policyholder qualifies for social security disability insurance (SSDI), the policy’s benefits would be reduced by the amount of the SSDI benefit to prevent the policyholder from receiving more than the specified percentage of their pre-disability earnings.
Individuals might opt for a lump sum settlement to avoid the complexity of benefit offsets and to minimize the financial impact on SSDI payments through specific structuring of the settlement.
Making the Most of Your Policy: Tips for Maximizing LTD Benefits
Understanding the specifics of your LTD plan, including coverage percentage of pre-disability earnings and maximum monthly payment, is essential for benefit maximization. Ensure your pre-disability earnings are calculated correctly by reviewing the policy’s summary plan description or consulting your HR department.
To increase LTD payments, follow these steps:
File the claim while still employed to prevent lowered benefits due to a drop in pre-disability earnings.
Avoid quitting your job before filing for LTD benefits or taking a lower-paying position, as this can affect your coverage and result in reduced payments.
Consult with tax attorneys or BenGlassLaw to understand policy terms better, address taxation of benefits, and navigate potential claims issues.
Summary
In conclusion, understanding Long-Term Disability benefits and how they are calculated is key to maximizing your payout. From the importance of COLA adjustments and understanding the elimination period to assessing insurance company tactics and preparing for potential roadblocks, it’s crucial to be well-informed about every aspect of your policy. Remember, the journey to securing your financial future begins with knowledge, and with the right guidance, you can navigate through the complexities and secure the benefits you’re entitled to.
