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#1 Just Win Baby

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Posted 25 March 2011 - 06:50 PM

My wife has been disabled since 1998. She had a long term disability plan through her employer. Cigna is the carrier. Cigna applied for Social Security disability on her behalf and she eventually qualified, so she gets a SS check every month and Cigna's monthly payment was reduced by the amount of the SS check. Cigna pays her $980 per month and the terms of the policy are such that they will pay her that exact amount (it is not indexed for inflation) for another 25 years, assuming she remains disabled. And she will, barring a miracle of some kind. So they stand to pay her ~$292K over that 25 year period. Her Cigna benefit is not taxed, because she paid for her LTD policy with after tax dollars. Cigna has offered her a $100K lump sum payment to waive all future obligations. I'm interested in opinions on this and advice on what steps to take to assess the best course of action and, if appropriate, negotiate. Cigna says they view the present value of their obligation to her as being worth $168K. They encourage us to consult an attorney and financial adviser and will even pay up to $250 in fees for that advice. My questions: 1. Is the lump sum payment tax free since her monthly payment is tax free? Obviously there is a huge difference if it is taxable than if it isn't. Logically, it seems it shouldn't be taxable, but I'm not sure how to verify this. (Cigna says it offers no opinion on the matter.) 2. Big gap between $168K and $100K. Obviously, Cigna isn't going to pay $168K if that is what they truly value the obligation as... they need to gain some value if they are going to do this. But I'm assuming if this is negotiable. How best to negotiate? How to determine the right amount to ask for? 3. How to properly assess whether it is more valuable to take a lump sum and what the right value is to make it worthwhile? As I see it, there are some small risks that the full value will never be paid out... as much as I don't want to think about it, my wife may not live for 25 more years, and money now could be more valuable to her (e.g., to make her life more comfortable), though we have a comfortable lifestyle already... it also is at least remotely possible that Cigna could go out of business at some point and stop paying... or that they could try to pull some BS relating to her status and say they no longer view her as qualified, etc. None of that seems likely, but it is possible. There is also the possibility that the lump sum carries with it some intangible value that makes it worth more than just the dollar value. For example, we've been thinking of selling our condo and buying a house. If we had an extra $100K to put down, we could buy a nicer house. I had a brief phone conversation with a local attorney who specializes in SS disability, and he recommended that we try to negotiate without an attorney. He suggested talking to a financial adviser about the tax question, but I haven't done that yet. I know there are a lot of attorneys in the FFA, and perhaps some financial advisers as well. I would appreciate some advice on this situation, and I would especially like to hear from anyone who has experienced a similar situation.

Edited by Just Win Baby, 25 March 2011 - 09:53 PM.




#2 Couch Potato

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Posted 25 March 2011 - 08:51 PM

My understanding is that if the monthly payments are tax free, the lump sum would be as well. I can look into this further later. While I've been exposed to this subject some in my years as a CPA, I'm by no means an expert. Worth a read and possibly a phone call: http://www.diattorne...policy-buyouts/ They mentioned some of the things you did. It may be well worth it to use a professional in this area, depending on his cost, rather than try to negotiate on your own. You could be leaving a lot on the table by going it on your own.
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#3 Just Win Baby

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Posted 25 March 2011 - 09:54 PM

Thanks, CP. I submitted a request for a free consultation.

#4 DA RAIDERS

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Posted 26 March 2011 - 12:23 AM

What's up my brother, Just my .02. I had knee surgery due to a work accident and was deemed to be 2% disabled. Where the hell do they get these numbers? Anyway, all future care is covered for life. The insurance company wanted to buy me out for 10G. I turned them down because if I ever do need surgery it will be way more than 10G. It was an obvious ploy by them to get off the hook for a potential knee surgery when I'm 65 or whenever. Not sure if that helps or not, but the point is that the insurance company wouldn't be offering you something that isn't in their best intetest. Mine was obvious. Good luck!
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#5 Christo

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Posted 26 March 2011 - 08:04 AM

The one thing you must keep in mind is what happens if for some reason SS quits paying? If CIGNA is still paying it would have to increase its payments to cover the loss of SS. If your wife takes the lump sum and waives her rights against CIGNA she's SOL. As for CIGNA needing to make some money, it seems to me that if CIGNA values the annuity at $168k, they should be willing to do the deal for one penny less. $100k is a joke.
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#6 Deepster

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Posted 26 March 2011 - 08:13 AM

it also is at least remotely possible that Cigna could go out of business at some point and stop paying... or that they could try to pull some BS relating to her status and say they no longer view her as qualified, etc. None of that seems likely, but it is possible.

You don't need to factor this into your decision. Disability carriers are required by law to have reserves set aside to cover every payment they've promised to pay. They have to explicitly show proof of those reserves in their overall accounting.

#7 shadyridr

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Posted 26 March 2011 - 08:21 AM

it also is at least remotely possible that Cigna could go out of business at some point and stop paying... or that they could try to pull some BS relating to her status and say they no longer view her as qualified, etc.

The chances of the first happening are slim to none. The chances of the second happening arent likely as long as she is following doctors orders and she cant work in ANY occupation. Since she was disabled in 1998 her own occupation period has expired. Therefore, if a doctor states she cannot work in ANY occupation she should be fine. Its all based on the doctor, CIGNA cant do much about it.
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#8 shadyridr

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Posted 26 March 2011 - 08:22 AM

Oh BTW I think you should do whatever screws CIGNA out of the most money for the reason I PM'ed you
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#9 Fennis

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Posted 26 March 2011 - 08:29 AM

Good luck. I have a brother is collects LTD and we are considering approaching them for a settlement. I do have a friend who settled claims for Nationwide. There is definitely room for negotiation in these things. They will drag it out, but you should ask for more than their offer.

#10 Deepster

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Posted 26 March 2011 - 09:09 AM

Oh BTW I think you should do whatever screws CIGNA out of the most money for the reason I PM'ed you

I'm not crazy about this "advice" for whatever the reason is. To this point, the original poster's wife has suffered a major disability and the carrier has done right by her the entire way. They're making good on their promises to the covered individual. I can speak from experience, that every story you can tell me where someone "got screwed", I've approved 10 more stories where the carrier is not at fault and pays something they shouldn't pay because of broker pressures, pressure from the employer that they'll take their business elsewhere, good will towards a good partner, etc.

#11 Fennis

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Posted 26 March 2011 - 09:12 AM

Oh BTW I think you should do whatever screws CIGNA out of the most money for the reason I PM'ed you

I'm not crazy about this "advice" for whatever the reason is. To this point, the original poster's wife has suffered a major disability and the carrier has done right by her the entire way. They're making good on their promises to the covered individual. I can speak from experience, that every story you can tell me where someone "got screwed", I've approved 10 more stories where the carrier is not at fault and pays something they shouldn't pay because of broker pressures, pressure from the employer that they'll take their business elsewhere, good will towards a good partner, etc.

those poor insurance companies

#12 Deepster

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Posted 26 March 2011 - 10:09 AM

those poor insurance companies

*shrug* People now pay upwards of 3.00 for a 16 ounce bottle of water at a ball game. Or 4.00 for a bag of popcorn at a movie. "Mars Needs Moms" cost 175 million to make and brought in 6.9 million it's first weekend and your ticket prices will keep going up. Do you hate bottled water, snack distributors and movie studios too? Those finances seem a lot more disjointed than the fee for service that insurance provides.

#13 (HULK)

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Posted 26 March 2011 - 10:27 AM

You need to calculate the present value of $980 a month. To do this accurately, you'd need to figure out a fair cost of capital interest rate... I'm not sure what % I would use. Once you determine a reasonable rate and factor in inflation you can find a time value of money calculator with google and plug it in. It could come out either way. I can tell you that in 25 years, $980 a month won't feel like much money.

Try this calculator: here

#14 shadyridr

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Posted 26 March 2011 - 10:39 AM

You need to calculate the present value of $980 a month. To do this accurately, you'd need to figure out a fair cost of capital interest rate... I'm not sure what % I would use. Once you determine a reasonable rate and factor in inflation you can find a time value of money calculator with google and plug it in. It could come out either way. I can tell you that in 25 years, $980 a month won't feel like much money.

Try this calculator: here

umm you also have to factor in a mortality rate

Also, Im gonna guess the present value of her benefit is $168k. I really doubt they're "lying" to her about that. The problem he's having is their offer of $100k.

Edited by shadyridr, 26 March 2011 - 10:41 AM.

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#15 The Big Guy

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Posted 26 March 2011 - 12:05 PM


You need to calculate the present value of $980 a month. To do this accurately, you'd need to figure out a fair cost of capital interest rate... I'm not sure what % I would use. Once you determine a reasonable rate and factor in inflation you can find a time value of money calculator with google and plug it in. It could come out either way. I can tell you that in 25 years, $980 a month won't feel like much money.

Try this calculator: here

umm you also have to factor in a mortality rate

Also, Im gonna guess the present value of her benefit is $168k. I really doubt they're "lying" to her about that. The problem he's having is their offer of $100k.

It is very easy to bejigger the numbers here. It all depends on what factor you use for the present value of money. if they are basing their calculations on the historic low interest rates of today, then they are crushing the value low. Find out what number they used for that and open up the PV of money chapter of a statistics book (been too many years for me--lol) and figure out how badly they are trying to screw you over with all of their figures. This stuff is all open to interpretation, so you can negotiate all the numbers used.
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#16 shadyridr

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Posted 26 March 2011 - 12:14 PM



You need to calculate the present value of $980 a month. To do this accurately, you'd need to figure out a fair cost of capital interest rate... I'm not sure what % I would use. Once you determine a reasonable rate and factor in inflation you can find a time value of money calculator with google and plug it in. It could come out either way. I can tell you that in 25 years, $980 a month won't feel like much money.

Try this calculator: here

umm you also have to factor in a mortality rate

Also, Im gonna guess the present value of her benefit is $168k. I really doubt they're "lying" to her about that. The problem he's having is their offer of $100k.

It is very easy to bejigger the numbers here. It all depends on what factor you use for the present value of money. if they are basing their calculations on the historic low interest rates of today, then they are crushing the value low. Find out what number they used for that and open up the PV of money chapter of a statistics book (been too many years for me--lol) and figure out how badly they are trying to screw you over with all of their figures. This stuff is all open to interpretation, so you can negotiate all the numbers used.

An interest rate of 4.25% is reasonable
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#17 Das Boot

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Posted 26 March 2011 - 12:21 PM

My wife has been disabled since 1998. She had a long term disability plan through her employer. Cigna is the carrier. Cigna applied for Social Security disability on her behalf and she eventually qualified, so she gets a SS check every month and Cigna's monthly payment was reduced by the amount of the SS check.

Is this just a flat payment for 25 years with no additional insurance component or other factors? I.e., is there any way Cigna would have to pay for anything additional for your wife, or is this payment their only obligation?

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#18 shadyridr

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Posted 26 March 2011 - 12:38 PM

My wife has been disabled since 1998. She had a long term disability plan through her employer. Cigna is the carrier. Cigna applied for Social Security disability on her behalf and she eventually qualified, so she gets a SS check every month and Cigna's monthly payment was reduced by the amount of the SS check.

Is this just a flat payment for 25 years with no additional insurance component or other factors? I.e., is there any way Cigna would have to pay for anything additional for your wife, or is this payment their only obligation?

Long Term Disability is often a % of your salary (usually between 50%-67%) up to a monthly maximum. They offset the benefit by Social Security Disability Benefits you are eligible to receive as well as some other things. The duration of the benefit is usually until the earliest of a person returning to work, Social Security Normal Retirement Age, or death. Insurance companies often try assisting you returning to work either via rehab plans and other incentives. Returning someone to work is the goal as that is beneficial for everyone involved (the insurance company doesnt have to pay any further benefits, the employer gets their employee back, and the employee gets their full income back). It sounds like in this case CIGNA believes his wife will not have the ability to return to work and thus are offering her the option of a buyout. She is under no obligation to take this but for some people it may be beneficial. It is not only done for the insurance company's benefit.
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#19 Sand

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Posted 26 March 2011 - 01:05 PM

There is also the possibility that the lump sum carries with it some intangible value that makes it worth more than just the dollar value. For example, we've been thinking of selling our condo and buying a house. If we had an extra $100K to put down, we could buy a nicer house.

#1, with one person unable to work at all, wouldn't this be a huge amount of leverage with no fallback in case you get hurt? And shouldn't that money be saved for the care she (obviously) needs and possible future expenses? I'd think a bit of conservatism here would be in order?
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#20 Just Win Baby

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Posted 26 March 2011 - 01:06 PM

What's up my brother, Just my .02. I had knee surgery due to a work accident and was deemed to be 2% disabled. Where the hell do they get these numbers? Anyway, all future care is covered for life. The insurance company wanted to buy me out for 10G. I turned them down because if I ever do need surgery it will be way more than 10G. It was an obvious ploy by them to get off the hook for a potential knee surgery when I'm 65 or whenever. Not sure if that helps or not, but the point is that the insurance company wouldn't be offering you something that isn't in their best intetest. Mine was obvious. Good luck!

Thanks, GB. 2%, LOL. I had a similar situation with a knee after a car accident and signed the paperwork to get the $10K or so that they offered. This is a bit different, in that the benefit is fixed and will not change unless we take a lump sum. In other words, we aren't waiving any potential additional future obligation by Cigna, which is a bit different than the injury scenario you had. Hope the knee is good.

#21 Just Win Baby

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Posted 26 March 2011 - 01:09 PM

The one thing you must keep in mind is what happens if for some reason SS quits paying? If CIGNA is still paying it would have to increase its payments to cover the loss of SS. If your wife takes the lump sum and waives her rights against CIGNA she's SOL. As for CIGNA needing to make some money, it seems to me that if CIGNA values the annuity at $168k, they should be willing to do the deal for one penny less. $100k is a joke.

While this is true, how could SS ever stop paying, unless they determined she is no longer disabled? In that case, Cigna would also stop paying. Or are you alluding to some future possibility where SS goes away because the government can't afford it...? And there is essentially a 0% chance that she will ever not be disabled. She has major spinal problems and chronic pain due to a 1987 car accident that almost killed her and more than 10 subsequent major spinal surgeries, including several at top orthopedic clinics like Duke and Johns Hopkins.

#22 Just Win Baby

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Posted 26 March 2011 - 01:11 PM

it also is at least remotely possible that Cigna could go out of business at some point and stop paying... or that they could try to pull some BS relating to her status and say they no longer view her as qualified, etc. None of that seems likely, but it is possible.

You don't need to factor this into your decision. Disability carriers are required by law to have reserves set aside to cover every payment they've promised to pay. They have to explicitly show proof of those reserves in their overall accounting.

OK... my FIL was an executive for State Farm for 30+ years, and he once told me that if Hurricane Andrew had been a direct hit on Miami that State Farm would have gone bankrupt. I assumed there was at least some very small possibility that Cigna could go bankrupt one day, and I wasn't sure if that meant they would be able to stop paying.

#23 Just Win Baby

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Posted 26 March 2011 - 01:13 PM

it also is at least remotely possible that Cigna could go out of business at some point and stop paying... or that they could try to pull some BS relating to her status and say they no longer view her as qualified, etc.

The chances of the first happening are slim to none. The chances of the second happening arent likely as long as she is following doctors orders and she cant work in ANY occupation. Since she was disabled in 1998 her own occupation period has expired. Therefore, if a doctor states she cannot work in ANY occupation she should be fine. Its all based on the doctor, CIGNA cant do much about it.

She definitely cannot work. Her doctors would never support a ruling that she can work in an occupation. We have been filling out questionnaires for Cigna and SS every 6 months or year ever since 1998, so they have accumulated plenty of evidence of that.

#24 Just Win Baby

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Posted 26 March 2011 - 01:13 PM

Oh BTW I think you should do whatever screws CIGNA out of the most money for the reason I PM'ed you

Thanks for the PM. I just replied a few minutes ago.

#25 shadyridr

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Posted 26 March 2011 - 01:14 PM

The one thing you must keep in mind is what happens if for some reason SS quits paying? If CIGNA is still paying it would have to increase its payments to cover the loss of SS. If your wife takes the lump sum and waives her rights against CIGNA she's SOL. As for CIGNA needing to make some money, it seems to me that if CIGNA values the annuity at $168k, they should be willing to do the deal for one penny less. $100k is a joke.

While this is true, how could SS ever stop paying, unless they determined she is no longer disabled? In that case, Cigna would also stop paying. Or are you alluding to some future possibility where SS goes away because the government can't afford it...? And there is essentially a 0% chance that she will ever not be disabled. She has major spinal problems and chronic pain due to a 1987 car accident that almost killed her and more than 10 subsequent major spinal surgeries, including several at top orthopedic clinics like Duke and Johns Hopkins.

Social Security is ALOT more strict than private insurance. If she got rejected for Social Security it would have zero effect on CIGNA paying. They would NOT stop paying her benefit. Not everyone is approved for Social Security Disability Benefits.
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#26 Just Win Baby

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Posted 26 March 2011 - 01:14 PM

Good luck. I have a brother is collects LTD and we are considering approaching them for a settlement. I do have a friend who settled claims for Nationwide. There is definitely room for negotiation in these things. They will drag it out, but you should ask for more than their offer.

Thanks for posting. I was hoping to hear info like this. :thumbup:

#27 shadyridr

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Posted 26 March 2011 - 01:16 PM

it also is at least remotely possible that Cigna could go out of business at some point and stop paying... or that they could try to pull some BS relating to her status and say they no longer view her as qualified, etc. None of that seems likely, but it is possible.

You don't need to factor this into your decision. Disability carriers are required by law to have reserves set aside to cover every payment they've promised to pay. They have to explicitly show proof of those reserves in their overall accounting.

OK... my FIL was an executive for State Farm for 30+ years, and he once told me that if Hurricane Andrew had been a direct hit on Miami that State Farm would have gone bankrupt. I assumed there was at least some very small possibility that Cigna could go bankrupt one day, and I wasn't sure if that meant they would be able to stop paying.

CIGNA doesnt offer property insurance. Much smalled probability of catastrophic claims exposure in life, disability or health insurance.
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#28 Just Win Baby

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Posted 26 March 2011 - 01:21 PM


You need to calculate the present value of $980 a month. To do this accurately, you'd need to figure out a fair cost of capital interest rate... I'm not sure what % I would use. Once you determine a reasonable rate and factor in inflation you can find a time value of money calculator with google and plug it in. It could come out either way. I can tell you that in 25 years, $980 a month won't feel like much money.

Try this calculator: here

umm you also have to factor in a mortality rate

Also, Im gonna guess the present value of her benefit is $168k. I really doubt they're "lying" to her about that. The problem he's having is their offer of $100k.

Yes, they describe their calculation as follows:

The amount of the lump sum payment mentioned above has been calculated based on our assessment of several factors including:

1. A review of the present value of your claim,
2. The statistical likelihood of benefits ceasing due to death, and
3. Anticipated future interest rates.

The calculation of the present value of your claim is $168,045.40. This amount is based upon contingencies such as mortality, morbidity and interest rate assumptions appropriate to your claim. The interest rate used in our calculation is 4.75 percent.



#29 Just Win Baby

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Posted 26 March 2011 - 01:24 PM

My wife has been disabled since 1998. She had a long term disability plan through her employer. Cigna is the carrier. Cigna applied for Social Security disability on her behalf and she eventually qualified, so she gets a SS check every month and Cigna's monthly payment was reduced by the amount of the SS check.

Is this just a flat payment for 25 years with no additional insurance component or other factors? I.e., is there any way Cigna would have to pay for anything additional for your wife, or is this payment their only obligation?

This monthly payment is their only obligation. They will never have to pay any other expenses or increase the payment if we decline the lump sum payment.

#30 Just Win Baby

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Posted 26 March 2011 - 01:28 PM

My wife has been disabled since 1998. She had a long term disability plan through her employer. Cigna is the carrier. Cigna applied for Social Security disability on her behalf and she eventually qualified, so she gets a SS check every month and Cigna's monthly payment was reduced by the amount of the SS check.

Is this just a flat payment for 25 years with no additional insurance component or other factors? I.e., is there any way Cigna would have to pay for anything additional for your wife, or is this payment their only obligation?

Long Term Disability is often a % of your salary (usually between 50%-67%) up to a monthly maximum. They offset the benefit by Social Security Disability Benefits you are eligible to receive as well as some other things. The duration of the benefit is usually until the earliest of a person returning to work, Social Security Normal Retirement Age, or death. Insurance companies often try assisting you returning to work either via rehab plans and other incentives. Returning someone to work is the goal as that is beneficial for everyone involved (the insurance company doesnt have to pay any further benefits, the employer gets their employee back, and the employee gets their full income back). It sounds like in this case CIGNA believes his wife will not have the ability to return to work and thus are offering her the option of a buyout. She is under no obligation to take this but for some people it may be beneficial. It is not only done for the insurance company's benefit.

This is generally accurate in my wife's case. She is not capable of returning to work in any occupation. I mentioned questionnaires earlier... they are focused on her activities and capabilities and are clearly designed to try to identify any possible occupation she could perform. We've been filling them out for years, and I assume they have concluded that she isn't ever going to return to work. Hence, their offer of a buyout. As for whether or not they are doing it for our benefit as well as their own, I don't think that is the case. If they wanted to benefit us as well as themselves, I don't think they would offer only 60% of their view of the present value of her claim, and that present value already calculated to take into account mortality and morbidity (i.e., it is already appropriately discounted). I think it is very clear they are seeking to do this for Cigna's benefit. I don't have a problem with it, Cigna is a business. If it is negotiable and we decide to go that route, I assume we can get closer to the actual present value of the claim and then perhaps we will have a situation that benefits both parties.

#31 Just Win Baby

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Posted 26 March 2011 - 01:36 PM

There is also the possibility that the lump sum carries with it some intangible value that makes it worth more than just the dollar value. For example, we've been thinking of selling our condo and buying a house. If we had an extra $100K to put down, we could buy a nicer house.

#1, with one person unable to work at all, wouldn't this be a huge amount of leverage with no fallback in case you get hurt? And shouldn't that money be saved for the care she (obviously) needs and possible future expenses? I'd think a bit of conservatism here would be in order?

Fair points. I was simply providing an example that might favor the lump sum payment for reasons beyond just the dollar value. As for her care, she is covered by both my employer insurance policy, which is a good one, and Medicare, which she qualifies for since she is SS disabled. Her care is expensive but well covered by the combination of both policies. However, if something happened to me, I lost my job, etc., my employer policy could go away, and it would become a bigger issue for sure. Fortunately, we have some savings and investments already that would help, and her family is also very involved and would also help in whatever way we/she needed help. On the other hand, the quality of life for her is very poor currently. It is a constant struggle to try to find ways to improve that, and that's what I was thinking with the house example. She wants to move, but it's a challenge given the real estate market and the area we live in (beach). Anyway, I wasn't really intending to get into all that here. But I agree that you raise some good considerations.

#32 Just Win Baby

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Posted 26 March 2011 - 01:47 PM



You need to calculate the present value of $980 a month. To do this accurately, you'd need to figure out a fair cost of capital interest rate... I'm not sure what % I would use. Once you determine a reasonable rate and factor in inflation you can find a time value of money calculator with google and plug it in. It could come out either way. I can tell you that in 25 years, $980 a month won't feel like much money.

Try this calculator: here

umm you also have to factor in a mortality rate

Also, Im gonna guess the present value of her benefit is $168k. I really doubt they're "lying" to her about that. The problem he's having is their offer of $100k.

It is very easy to bejigger the numbers here. It all depends on what factor you use for the present value of money. if they are basing their calculations on the historic low interest rates of today, then they are crushing the value low. Find out what number they used for that and open up the PV of money chapter of a statistics book (been too many years for me--lol) and figure out how badly they are trying to screw you over with all of their figures. This stuff is all open to interpretation, so you can negotiate all the numbers used.

So I used that calculator, plugged in 980 for payment, 4.75 for interest rate, 298 as the number of periods (the number of months of payments remaining, assuming full payout), and used monthly as the compounding field. That provides a PV value of $171,294. But if I change the compounding field to annual, it goes to $206,631. Big difference, and I'm not sure what the appropriate choice is for the compounding frequency. Furthermore, that calculator obviously doesn't account for mortality and morbidity, so presumably its number has to be discounted, but I don't know how to properly account for that.

Any thoughts on that?

#33 Just Win Baby

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Posted 26 March 2011 - 01:48 PM

OK, I responded to everyone so far. Thanks for the feedback. If it comes to negotiation, I'm interested in advice on whether or not to try that ourselves or involve an attorney. I'm wondering if we involve an attorney how much we will end up paying him or her, and thus how much more we can get by going that route vs. doing it ourselves. That said, I am not experienced in negotiating, so I assume I would not necessarily be able to get as much as someone who is. Any thoughts on this?

#34 shadyridr

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Posted 26 March 2011 - 02:03 PM

My wife has been disabled since 1998. She had a long term disability plan through her employer. Cigna is the carrier. Cigna applied for Social Security disability on her behalf and she eventually qualified, so she gets a SS check every month and Cigna's monthly payment was reduced by the amount of the SS check.

Is this just a flat payment for 25 years with no additional insurance component or other factors? I.e., is there any way Cigna would have to pay for anything additional for your wife, or is this payment their only obligation?

Long Term Disability is often a % of your salary (usually between 50%-67%) up to a monthly maximum. They offset the benefit by Social Security Disability Benefits you are eligible to receive as well as some other things. The duration of the benefit is usually until the earliest of a person returning to work, Social Security Normal Retirement Age, or death. Insurance companies often try assisting you returning to work either via rehab plans and other incentives. Returning someone to work is the goal as that is beneficial for everyone involved (the insurance company doesnt have to pay any further benefits, the employer gets their employee back, and the employee gets their full income back). It sounds like in this case CIGNA believes his wife will not have the ability to return to work and thus are offering her the option of a buyout. She is under no obligation to take this but for some people it may be beneficial. It is not only done for the insurance company's benefit.

This is generally accurate in my wife's case. She is not capable of returning to work in any occupation. I mentioned questionnaires earlier... they are focused on her activities and capabilities and are clearly designed to try to identify any possible occupation she could perform. We've been filling them out for years, and I assume they have concluded that she isn't ever going to return to work. Hence, their offer of a buyout. As for whether or not they are doing it for our benefit as well as their own, I don't think that is the case. If they wanted to benefit us as well as themselves, I don't think they would offer only 60% of their view of the present value of her claim, and that present value already calculated to take into account mortality and morbidity (i.e., it is already appropriately discounted). I think it is very clear they are seeking to do this for Cigna's benefit. I don't have a problem with it, Cigna is a business. If it is negotiable and we decide to go that route, I assume we can get closer to the actual present value of the claim and then perhaps we will have a situation that benefits both parties.

I agree with you 100%. I wouldnt dispute the $168k. It sounds reasonable and if you wanted to dispute it you would need not only a lawyer but an actuary. I just calculated the PV of her benefit for 25 yrs at that int rate and it came to about $178k. That didnt take into acct any mortality or morbidity factors. In other words their calc sounds perfectly reasonable. The thing I dont understand is why they offered you $100k? Did they offer you that cuz it was a nice round number? If so then it sounds like something you can negotiate.
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#35 Just Win Baby

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Posted 26 March 2011 - 02:19 PM

My wife has been disabled since 1998. She had a long term disability plan through her employer. Cigna is the carrier. Cigna applied for Social Security disability on her behalf and she eventually qualified, so she gets a SS check every month and Cigna's monthly payment was reduced by the amount of the SS check.

Is this just a flat payment for 25 years with no additional insurance component or other factors? I.e., is there any way Cigna would have to pay for anything additional for your wife, or is this payment their only obligation?

Long Term Disability is often a % of your salary (usually between 50%-67%) up to a monthly maximum. They offset the benefit by Social Security Disability Benefits you are eligible to receive as well as some other things. The duration of the benefit is usually until the earliest of a person returning to work, Social Security Normal Retirement Age, or death. Insurance companies often try assisting you returning to work either via rehab plans and other incentives. Returning someone to work is the goal as that is beneficial for everyone involved (the insurance company doesnt have to pay any further benefits, the employer gets their employee back, and the employee gets their full income back). It sounds like in this case CIGNA believes his wife will not have the ability to return to work and thus are offering her the option of a buyout. She is under no obligation to take this but for some people it may be beneficial. It is not only done for the insurance company's benefit.

This is generally accurate in my wife's case. She is not capable of returning to work in any occupation. I mentioned questionnaires earlier... they are focused on her activities and capabilities and are clearly designed to try to identify any possible occupation she could perform. We've been filling them out for years, and I assume they have concluded that she isn't ever going to return to work. Hence, their offer of a buyout. As for whether or not they are doing it for our benefit as well as their own, I don't think that is the case. If they wanted to benefit us as well as themselves, I don't think they would offer only 60% of their view of the present value of her claim, and that present value already calculated to take into account mortality and morbidity (i.e., it is already appropriately discounted). I think it is very clear they are seeking to do this for Cigna's benefit. I don't have a problem with it, Cigna is a business. If it is negotiable and we decide to go that route, I assume we can get closer to the actual present value of the claim and then perhaps we will have a situation that benefits both parties.

I agree with you 100%. I wouldnt dispute the $168k. It sounds reasonable and if you wanted to dispute it you would need not only a lawyer but an actuary. I just calculated the PV of her benefit for 25 yrs at that int rate and it came to about $178k. That didnt take into acct any mortality or morbidity factors. In other words their calc sounds perfectly reasonable. The thing I dont understand is why they offered you $100k? Did they offer you that cuz it was a nice round number? If so then it sounds like something you can negotiate.

They do not provide any explanation or justification for offering $100K. I assume it is because it is a number large enough that a lot of people might just accept it, even if it isn't truly in their best interest. We are comfortable enough that we could pass on this if we determine it isn't of appropriate value, but I assume many families in our situation may be struggling and find it too tempting to pass up.

#36 Christo

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Posted 26 March 2011 - 02:33 PM

OK, I responded to everyone so far. Thanks for the feedback. If it comes to negotiation, I'm interested in advice on whether or not to try that ourselves or involve an attorney. I'm wondering if we involve an attorney how much we will end up paying him or her, and thus how much more we can get by going that route vs. doing it ourselves. That said, I am not experienced in negotiating, so I assume I would not necessarily be able to get as much as someone who is. Any thoughts on this?

That isn't a "you take I-55 to get from Chicago to St. Louis" type of question. It's whatever you feel comfortable with.
Thanks,

Christo

#37 shadyridr

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Posted 26 March 2011 - 04:24 PM

The Disability Claim Buyout by Arthur L. Fries, RHU Executive Summary A disability claim buyout involves a lump-sum dollar amount paid by the insurance company to a claimant in lieu of the continuation of a monthly benefit. Since a large sum of money may be involved, it is suggested that the claimant seek advice from an individual experienced in negotiating disability buyouts. This article discusses how a disability buyout works, along with the advantages and disadvantages that should be considered before a buyout decision is made. As a financial planner you are asked to provide advice in many areas. Maybe a client has sought advice from you on a disability claim, where a disability insurance company is offering your client a settlement in the form of a buyout. Rather than pay a monthly benefit for what may be many years, the company offers a lump-sum settlement in the form of a single check. If your client agrees to the settlement, they surrender their disability policy to the insurance company, which then no longer pays a monthly benefit. Is a buyout a good move for your client? This article covers the reasons to consider a buyout as well as the reasons to not consider a buyout. If your client decides to pursue an insurance company's buyout offer, you'll want to know how companies derive buyout figures and whether they're fair. And there's a decision you'll need to make: Can you manage the buyout process on your own, or should you bring in a consultant? This article shares some thoughts on things you should be aware of in working with consultants and actuaries, and how the buyout figures are calculated. Reasons to Consider a Buyout I often suggest that the claimant, after receiving a buyout offer, consult with his or her financial planner since the planner is the most likely to have a broad overview of the claimant's financial picture. There are many reasons to consider a buyout, all of which are unique to your client's situation from both an emotional and financial standpoint: 1. Tuition money is needed for college-age children and the claimant's long-term goals have to be set aside to take care of short-term obligations. 2. A financial investment may arise that may provide substantial gains in the future and may not be available at a later date. 3. The claimant has a business or job opportunity that will use his or her past skills and education and will not conflict with the claimant's medical symptoms. 4. The claimant no longer has to deal with claim forms (progress reports, attending physician statements), independent medical evaluations, functional capacity evaluations, video surveillance, field investigations, submission of tax returns and other documents after a disability claim has been approved. 5. Your client's anxiety over knowing their claim my be discontinued, because of harassment by the insurance company, can be eliminated. 6. There is a change from one administrator of the claim to another. 7. There is a change in the insurance company's claim management philosophy or administrator, or a change in claims personnel. 8. It's possible that your client may die in the near future. 9. The claimant's health changes in a way that might increase mortality, but this is not known by the insurance company. 10. There's a chance that the claimant might get better and be able to return to work. Disadvantages of a Buyout There also are negative aspects of a buyout, where your client may be better off keeping their policy or policies in force, with the expectation that the monthly benefit will be paid for the duration of the benefit period. Following are some reasons to turn down a buyout: 1. Your client has a lifetime payout in their occupation and has a family history of longevity. 2. Your client may squander the money in bad investments or bad judgment, despite your best advice. 3. With a large lump sum, friends or relatives may jump out of the woodwork to ask for money that should be used for long-term investment purposes. 4. Your client may be tempted to gamble large amounts of cash on horses, craps, poker, and so on, at the risk of losing it all. 5. Your client is a day trader with high expectations and little knowledge, and might end up in the market at the wrong time. 6. There may be emotional and economic devastation to your client as a result of using this money in areas where they have no financial expertise. Working with Consultants and Actuaries Your client, with your assistance, has decided to pursue the insurance company's buyout offer. But do you have the necessary experience to manage a disability claim buyout for your client? As you are well aware, giving advice in an area in which you are not proficient may be the basis of a malpractice suit. Maybe you have sold a few disability policies, sold many, or none at all. Maybe you're knowledgeable in the area of disability claims, or you've decided to bring in an expert instead. You may find that handling this process on your own is difficult, so with the help of a consultant, you can lower your anxiety level—and you will find the fees reasonable. It would be wise to find a consultant who has handled many disability claims and is familiar with the disability buyout negotiation process. Even when a disability buyout is not in the best interest of your client, the consultant will get paid for his or her time, thus allowing your client to receive secure, objective advice. There are disability claim consultants who can help you, and you needn't worry about losing your client to them. Those consultants with the most expertise advise only on claims and do not sell products or charge a fee for financial advice. If possible, an actuary experienced in disability claims should be brought in to work up numbers for your client. Finding an actuary in this area may be difficult since those working for insurance companies usually are not available to claimants. But they can be found, and the right actuary can make a difference in the numbers. Some disability claim consultants have access to disability actuaries and can provide assistance either behind the scenes or work on your behalf, with the insurance company being aware of their presence. Factors to Be Aware Of Some disability companies provide an initial offer that is fair and based on sound actuarial principles, and they don't deviate from their initial offer. Others, however, may lowball the initial offer in hopes of paying the lowest possible figure. Some companies engage in questionable approaches that pressure or threaten the claimant in an attempt to make the claimant give in to the company's offer. These companies should be avoided, of course. An insurance company may open by asking the claimant to provide a figure. How the claimant responds could be crucial in the buyout process, and the claimant should always secure an offer in writing. In the offer letter, insurance companies will usually start out with the figure they are prepared to pay and then talk about the present value of anticipated future benefits. At this point the company also should mention the future potential benefit (that is, how much the monthly benefit will be worth to, say, age 65). The present value takes into consideration the insurance company's reserves, then a discount factor is applied that represents unearned interest for future years. A COLA (cost-of-living adjustment) benefit might be included in the policy. Make sure this is included in the insurance company's figures. Whether the COLA benefit is paid on the basis of simple or compound interest should be specified. Almost all COLA benefits level out at age 65 and then, if it's a lifetime payout, continue at the level amount for life. On rare occasions, I've seen a COLA benefit that does not level out at age 65 and will continue to increase for life. In the case of residual (partial disability) benefits, which typically are paid to age 65, there is one company that pays the partial disability benefit for life (in a contract that pays total disability benefits for life). After reducing the future potential benefit to the present value and applying an interest factor, an additional reduction is made for mortality (when the insurance company thinks you will die) and a morbidity factor (if the insurance company thinks you have a potential for coming back to work). Finally, a further discount is applied to give the insurance company a profit margin so that the buyout makes sense to them. The lower the offer, the higher the profit margin. Sample Actuary Figures Following are figures from an actuary related to a disability buyout I was involved in two years ago. Claimant is disabled, due to carpal tunnel and cervical problems since August 1996. He was born December 1960. He has lifetime benefits with COLA to age 65. His original monthly benefit, before COLA, was $18,550. Currently, aged 45, he has a life expectancy to age 79.2, according to recent Society of Actuaries' standard mortality tables. With COLA already applied, his current benefit is $25,228. COLA is related to CPI, has a 4 percent minimum increase and has been assumed to be 4 percent in the future. His maximum payout, including future 4 percent COLA increases, would be $14,383.240. If these benefits were received today, discounting at a 5.50 percent interest rate, the value would be reduced to $5,940,352, or 41.3 percent of his maximum anticipated payout. The reduction in value is significant because of his young age and long life expectancy. An insurance company will hold reserves based on the 1987 Commissioner's Group Disability Table and is allowed to include additional morbidity factors. This reduces the value of benefits to $4,058,169, or 28.2 percent of his full payout. Again, this reduction reflects his young age which, according to the standardized insurance table, projects a chance of recovery from disability. That prognosis may or may not apply to this claimant. Finally, an insurer might settle this liability for approximately 80 percent of the reserve, or $3,246,535, or 22.6 percent of his maximum payout. Summary of financials: Monthly Benefit: $ 25,228 Maximum payout, expected lifetime: $14,383,240; percentage of maximum payout: 100.0% With interest and mortality*: $ 5,940,352; percentage of maximum payout: 41.3% With interest and morbidity (i.e., reserve)** $ 4,058,169; percentage of maximum payout: 28.2% Possible settlement offer $ 3,246,535; percentage of maximum payout: 22.6% *Society of Actuaries RP 2000 mortality table **1987 Commissioner's Group Disability Table (CGDT)Percentage of Maximum Payout Conclusion A disability claim buyout can provide additional funds for you as a financial planner to work with in meeting the long-term goals of your client. There certainly is an opportunity for new fees or commissions on your part. In the final analysis, it will be your objectivity that results in your keeping the client or getting referrals. Knowing where to go and giving your client options will enhance your overall credibility.
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#38 bshell27

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Posted 26 March 2011 - 04:37 PM

Did not read every post so I am sorry if this has been stated, but if you settle and receive a lump sum ss/di will adjust the payments down unless you use spread language on the payments. And to the guy who lost "2%", that is a legal conclusion that the work comp commission in your state uses. All body parts are 0-100%. Depending on injury, treatment, permanent restrictions or not, any pain or loss of motion, etc. (off topic).

#39 Deepster

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Posted 26 March 2011 - 06:06 PM

OK... my FIL was an executive for State Farm for 30+ years, and he once told me that if Hurricane Andrew had been a direct hit on Miami that State Farm would have gone bankrupt. I assumed there was at least some very small possibility that Cigna could go bankrupt one day, and I wasn't sure if that meant they would be able to stop paying.

Property and Casualty insurance is a completely different animal. A hurricane isn't going to come along and make everyone get disabled. Those are catastrophic events that companies like State Farm try to plan for....but sometimes get walloped. And even if they went bankrupt, there are federal organizations that can step in and make sure insurance benefits are somehow paid. A company like CIGNA answers to shareholders and the stock they hold is regulated and dissected and analyzed. If Wall St thought there wasn't enough to cover their liability, their stock would drop like a rock. All I'm saying is, don't make the possibility of CIGNA going bankrupt a piece of your decisionmaking....

#40 Chaka

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Posted 26 March 2011 - 07:59 PM

The member Just Win Baby cannot receive any new messages.

JWB, I tried to send you a PM but got the above message. Send me a PM before you do anything. Seriously.
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#41 Just Win Baby

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Posted 26 March 2011 - 08:43 PM

OK... my FIL was an executive for State Farm for 30+ years, and he once told me that if Hurricane Andrew had been a direct hit on Miami that State Farm would have gone bankrupt. I assumed there was at least some very small possibility that Cigna could go bankrupt one day, and I wasn't sure if that meant they would be able to stop paying.

Property and Casualty insurance is a completely different animal. A hurricane isn't going to come along and make everyone get disabled. Those are catastrophic events that companies like State Farm try to plan for....but sometimes get walloped. And even if they went bankrupt, there are federal organizations that can step in and make sure insurance benefits are somehow paid. A company like CIGNA answers to shareholders and the stock they hold is regulated and dissected and analyzed. If Wall St thought there wasn't enough to cover their liability, their stock would drop like a rock. All I'm saying is, don't make the possibility of CIGNA going bankrupt a piece of your decisionmaking....

Makes sense. Thanks.

#42 Just Win Baby

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Posted 26 March 2011 - 08:44 PM

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JWB, I tried to send you a PM but got the above message. Send me a PM before you do anything. Seriously.

Just cleared out a bunch of old messages and sent you a PM.

#43 Just Win Baby

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Posted 27 March 2011 - 09:07 AM

Did not read every post so I am sorry if this has been stated, but if you settle and receive a lump sum ss/di will adjust the payments down unless you use spread language on the payments.

And to the guy who lost "2%", that is a legal conclusion that the work comp commission in your state uses. All body parts are 0-100%. Depending on injury, treatment, permanent restrictions or not, any pain or loss of motion, etc. (off topic).

Can you explain this? I don't understand what you are saying. My understanding is that SS made its original determination of what it would pay my wife using a formula largely determined by the amount of her past earnings that were subjected to FICA taxes... I am under the impression that the amount is now set and will be modified only through COLA on an annual basis for the rest of her life, assuming she remains disabled. I am not aware that it has anything to do with her Cigna benefits.




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