Long Term Disability claims are not claims for pain and suffering or general damage claims.
They are claims for a defined monthly disability amount based on percentage of your pre-disability earnings and last for a pre determined period of time. Under most policies, that period of time is the age of 65; although some policies have provisions whereby benefits last shorter, or longer. It all depends on what it says in the policy.
When you are receiving long term disability benefits, chances are you won’t be made entirely whole. That means that you won’t be earning as much on long term disability; as you would if you were working and earning an income.
Some policies provide that long term disability benefits are taxable. Some policies state that long term disability benefits are not taxable. Again, it all depends on what the long term disability policy states.
Many people want to know what is the best possible outcome in a long term disability case. This can be a difficult question to answer; given that everyone has different ideas on what the “best” outcome for their case is.
For starters, nobody from the insurance company will be going to jail for having not approved your long term disability benefits; or for cutting you off your claim. In addition, a personal injury lawyer cannot seize the home, car or bank accounts of the person(s) responsible at the insurance company for not approving your claim. These forms of relief simply don’t exist. Although I do suspect if these forms of relief did exist that insurance adjusters would be extra cautious and careful when handling your claim. Not all insurance adjusters are bad people. They do make mistakes from time to time. But that’s no excuse. They aren’t the ones who have to live day to day without being able to work and try to make ends meet.
For most claimants, the “best” outcome for their claim is having the insurance company pay out the arrears in full of what’s owing in the past; plus reinstate the long term disability benefits. This means that the claimant will be paid 100% of their past benefits, and receive benefits on a month to month basis so long as that they remain disabled. Lawyers and insurers call this a reinstatement.
The big advantage of a reinstatement is that the claimant is getting their benefits so long as they remain disabled. The disadvantage for the claimant is that they remain tied to the insurance company throughout the course of the reinstatement. There is no clean divorce as the claimant and the insurer need to continue working together to make sure that the benefits will flow.
The insurer will request for updated medical records which the claimant must pay for out of their own pocket. The insurer may ask that the claimant see their specialist, doctor, or some other regulated health professional for an opinion. The claimant must participate in the assessment(s). The insurer will ask that the claimant fill out questionnaires, forms, or do an interview so that the insurer can assess their on going disability. All of this is completely normal. We tell people that if you want the insurance company’s benefits, you have to jump through their hoops. This can be annoying, time consuming and not to mention scary. But if you don’t do it, then the insurance company will be on solid ground to terminate your long term disability benefits for non compliance. That’s something which you don’t want.
Keep in mind that just because you get reinstated does NOT believe that benefits will continue forever. The insurance company can turn around in a month and cut you off. There are no guarantees.
For some people a reinstatement is not a good idea because the relationship with the insurance company continues. There are people who are seeking a clean break from the insurance company. Just like claimants seek a clean break from the insurance company, many insurance companies are seeking a clean break from their claimants as well. Keeping a file open and handling is time consuming and expensive for insurers. Many would rather assess their risk, pay out a lump sum cheque, close their file and move on.
These clean breaks usually end up with lump sum settlements. In these cases the insurer and your lawyer will calculate the value of the arrears and the value of the future benefits. The insurer will seek to apply a discount rate to your future benefits. What happens if you die? What happens if you get better and go back to work? Insurers will not pay 100 cents on the dollar for your future benefits. They would rather go to trial. There is litigation risk which needs to be accounted for in any settlement given that the outcome at trial is never a certainty.
When structuring a lump sum payout, if long term disability benefits are taxable; keep in mind that arrears are taxable, but future benefits are not. So it’s best for a claimant to have as much structured in the future as possible so that they pay as little in tax on the settlement as possible. But this will depend on the amount of flexibility which the insurer has in structuring the settlement. Insurance adjusters and their lawyers have to allocate money in different headings and sometimes there is only so much reshuffling which they can do.
The great thing about a full and final lump sum settlement is that claimants feel FREE! No more insurance company writing them letters. No more litigation looming over their head. No more lawyers and insurance adjusters. No threat of surveillance and worry about what you should be or should not be doing. It’s a nice feeling have a case closed on a full and final basis for many claimants. Another advantage is that the claimant receives a large lump sum cheque to use however they would like. That’s always nice. The downside is that a reinstatement over a long period of time may have amounted to more money for the claimant than one large lump sum cheque. But if you die, or go back to work, those benefits would have stopped regardless.
Sometimes picking which settlement option is best for you isn’t an option at all. The insurance company many not be looking for a reinstatement given that they don’t believe that the claimant is disabled.